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Wednesday, Aug. 22, 2007 09:00 pm

Ripple effect

Push for ethanol production pushes prices higher

Untitled Document A steak dinner, a cold beer, a tank of gas, a bowl of cornflakes.
Prices on these items and others are rising, all in the quest to produce more ethanol, the corn-based product touted as a way to reduce dependence on foreign oil and lessen the impact of global warming.
America has embraced the promise of the renewable fuel, pouring billions of tax dollars into its development. But as Congress prepares to spend billions more for ethanol use and production, people are starting to see higher costs for a wide range of consumer goods. “People will first see it at the gas pump,” says Michael R. Ward, an associate professor of economics at the University of Texas at Arlington. “Then there will be a secondary hit, with the prices on commodities going up. “Ethanol will impact a lot. It’s a ripple effect.”
Farmers and others sprang into action after President George W. Bush said the nation was addicted to fossil fuels and overly reliant on crude oil from foreign sources. Bush called for a 20 percent decrease in gasoline use over the next decade, saying he wants increased use of renewables to make up the difference.
By 2012, he wants more than 7 billion gallons of ethanol blended into motor fuel and as much as 35 billion gallons by 2017. If this happens, Bush says, the drop in petroleum use should reduce greenhouse gas emissions and the United States’ dependence on foreign oil. This comes as farmers nationwide are producing a bumper crop of corn and as the government is providing subsidies for corn-based ethanol — 51 cents per gallon of ethanol. But because of the growing demand for ethanol, some oil companies are scaling back plans to expand refineries, and that could keep gasoline prices high. Other leaders are planning to build ethanol plants nationwide. Some say ethanol isn’t all it’s cracked up to be, though.
Production of the clean-burning fuel may take up to six times more energy than it ultimately saves simply because of the fossil energy used during the process, according to a study published in Critical Reviews in Plant Sciences, an academic journal, by Tad W. Patzek, a geoengineering professor at the University of California-Berkeley. Meanwhile, farmers are preparing for a big year with a 20 percent larger corn harvest than last year. Ethanol producers say their critics are exaggerating the effect on consumer prices. Yet cattle ranching and feeding operations, which primarily use corn-based feed for the cattle, say they’re hurting. “We’re probably losing $40 to $50 a head with the increased cost to produce the animal,” says Missy Bonds, assistant manager at the family-owned Bonds Ranch north of Saginaw, Texas. “We’ll feel it the most this winter [when] the cost is going to be a lot higher.”
They don’t have the option of switching to other grains, since there’s not much milo available and wheat costs have gone up too, says Jim Gill, market director for the Amarillo-based Texas Cattle Feeders Association. “Cattle feeders are between the proverbial rock and a hard place,” Gill says. “We can’t force a beef price as high as it needs to be. We’re hurting.”

This story was distributed by McClatchy Newspapers. Copyright © The Fort Worth Star-Telegram.
Here’s a snapshot of how experts say the ethanol boom is trickling down through the economy: Start with the farmers who responded to the call for more corn to manufacture more ethanol and planted about 20 percent more acres of corn nationwide this year than last. Some plowed over other crops, such as barley and soybeans, or switched from other crops to corn to help meet demand and cash in on higher-than-average corn prices. All that extra planting indeed is producing more corn, but a significant chunk of it will go into ethanol, putting price and supply pressure on the many other products corn is used for, including animal feed and a multitude of food products. The ranchers who use corn to raise cows, chickens, turkeys, pigs and other animals will pass along the higher prices to consumers on the products those animals produce, including milk, cheese, steak, bacon and more. Prices on anything made from corn — popcorn, soft drinks made with corn syrup, tortilla chips, and cereal — are going up, too. Prices on products that rely on other grains, such as barley, are going up in part because of the smaller acreage being farmed for those crops. Include beer on that list. The pinch on soybean production carries an especially interesting side effect because of another booming American consumer fascination: healthier, trans-fat-free foods. Soybeans are a key ingredient in trans-fat-free foods, so experts say less acreage will lead to price pressure on potato chips, fried chicken, and many other food products. Then there’s the pressure at the gasoline pump, because plans to expand oil refineries are being scaled back as energy companies push to meet the demand for ethanol. — Anna M. Tinsley
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