US Farmer's Incomes Now Tied More to Ethanol Than Food, Economist Says

illinois corn photo

photo: Mike Slichenmyer

Not to belabor the point, but of all sources of renewable energy taking a beating in the current economic storm, biofuels seem to be getting hit full force. Recently the world’s largest ethanol producer, Verasun, filed for bankruptcy and predictions have it that as many as 40 more plants could be shuttered within the next few months.

What this means for farmer’s incomes, according to economist Scott Irwin of the University of Illinois, is that because many incomes (at least in the midwest) are now tied more to ethanol than food, they will be tied to swings in energy prices more than ever. Here’s how Irwin describes it:Economic Swings Now Hit Farmers Faster Than Before

We’re just experiencing the full brunt of this new source of volatility. When food prices were the main trigger, recessionary impacts were much less direct and much more gradual. Now, there’s this new connection through energy costs that immediately gets translated to agriculture.

Corn Prices Still Likely to be Higher Than Average Though
But, Irwin says, that despite this volatility corn prices are still likely to be higher than the $2.42 per bushel average seen between 1973 and 2006:
“Over the next couple of years, with normal weather around the world, I think we’ll see corn prices ranging between $3.50 and $4 a bushel, closer to the low end with good weather and the high end with bad. But with a weather disaster, prices could easily spike to $5 or $6 again.

More from Irwin on corn/ethanol prices: Science Daily
Corn Ethanol
40 Corn Ethanol Plants Could File For Bankruptcy by Early 2009
$5 Billion in Corn Ethanol Subsidies Should be Eliminated, Food Before Fuel Urges
World’s Largest Ethanol Producer, Verasun Energy Corp, Files for Bankruptcy

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