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Put
an Ear in Your Tank?
Ethanol
production has helped double the price of corn since last
year, but no one’s quite sure how long this demand will last—or
if ethanol is really an attractive alternative-energy solution
By
Shawn Stone
‘The
dairy industry is the larg- est single segment of the state’s
agricultural industry.”
This is the official word of the New York State Department
of Agriculture and Markets. While the state’s overall ranking
as an exporter of agricultural products is only fair-to-middling—28—New
York ranks third in the country as an exporter of dairy products.
It’s big business. Being a dairy farmer, however, is not a
lucrative occupation. And in the last year, it’s become even
less lucrative for a lot of dairy farmers. That’s because
cows have to eat, and what they mainly eat is corn.
Eric Oohms, who, in a partnership with his father and two
brothers, works about 1,800 acres on the family farm in Chatham,
explains it this way: “In the Northeast, a lot of us grow
our own feed. It’s just traditionally the way it is: You own
cows, you plant corn in the spring.”
“I
was just plowing last night,” Oohms says, on fields that will
be used to grow corn. “In the fall you harvest it, and feed
your cows. It’s the same regardless whether you’re milking
50 cows or 500 cows.”
“My
family,” he says, “grows 80 percent of our feed, and buys
20 percent of our feed.”
Last year, production of ethanol—an alcohol fuel-additive
mostly made from corn in the United States—began to really
affect the price of corn.
“The
price [of corn] is almost double what it was a year ago,”
he says. “That’s a substantial hit for dairy farmers. Roughly
two-thirds of our cost is feed.”
“In
2006,” Oohms says, “we had some of the worst dairy prices
we’ve had in a long time. They were not the worst;
what made the situation worse is the cost of the inputs.”
By inputs, Oohms means, primarily, corn and energy.
“The
two are interrelated,” he explains. “Because energy prices
are so high, more and more corn is going into ethanol, so
there’s less corn for dairy farmers.”
The Oohms family have been in the dairy business since the
1500s. Yes, you read that correctly. While his father and
family emigrated from the Netherlands to the states in 1950,
and have owned their farm since 1952, they can trace their
family tree back hundreds of years in Holland. And for most
of the last half-millennium? Dairy farmers all.
Right now, they have about 400 head of cows. They do their
own milking, twice a day—“We milked three times a day for
about eight years, and we’ll never do that again; personally,
it killed us”—and raise enough feed to be able to sell to
their neighbors.
“We
have five different farms buying feed from us right now,”
Oohms says. “It grows through the summer. A couple of weeks
ago we only had two, [but] as people start running out of
feed from last year, they buy it from us.”
The idea is sensible: “You want to keep growing and diversifying
your income, so you’re not totally dependent on the dairy
market.”
Unfortunately, he notes, they’re really still dependent on
the dairy market, because the people they sell feed to are
also dairy farmers.
“Quite
frankly,” Oohms says, “if we don’t have any money, the people
we’re selling it to won’t have any money.”
Asked about the relationship between ethanol and the price
of corn, Oohms wonders: “How much of this is real? How much
is the corn supply short, and how much is speculation on what’s
going to happen with ethanol?”
“The
price of feed has gone up, and it has increased pressure on
dairy farmers,” says Thomas Lindberg of the New York State
Department of Agriculture and Markets. “They’ve had low milk
prices for all of last year, and increased fuel costs, and
when feed goes up, it hurts their cash flow.”
Lindberg explains that, right now, “we’re administering a
$30 million program” recently passed by the Legislature and
signed by Gov. Eliot Spitzer, to “get them through the planting
season, help them stay in business.”
Lindberg sees the long-term positives associated with ethanol
production.
“It’s
interesting: One of the byproducts of ethanol production,”
he explains, “is a product known as distiller dry grains,
which is actually a high-protein feed supplement. . . . On
the one hand you’re driving the price of corn up by producing
ethanol, and on the other you’re creating something that may
be beneficial.”
Like everything else associated with ethanol, Lindberg says,
“it’s a complicated situation.”
There are those farmers who have profited: “Anybody that’s
been working corn in the last year has seen really good times.
The price of corn’s around $4, $4.50 a bushel.”
Then there’s the prospect of new ethanol-production facilities
here in New York; five are currently in the planning and/or
building stages.
“I
think the dynamic that’s changing,” Lindberg says, “is that
we will be seeing ethanol production here in New York. We’re
hoping that it will improve the prices for corn a little .
. . instead of taking prices that are dictated from the Midwest.
We’ll get to start making prices here in New York.”
“Still,”
he cautions, “we are concerned about the rise in the prices
of feed.”
Lindberg also noted the increased interest in ethanol from
Wall Street: “I think with the fuel standards at the federal
level, the investment industry has gotten into [the ethanol
business]. The landscape has definitely changed.”
Asked about the current situation with corn prices, Peter
Gregg, spokesman for the New York Farm Bureau (a nongovernmental
advocacy group that claims 35,000 “member families”), says:
“It’s a good news, bad news situation. Farmers that have to
buy corn for cattle feed are not happy. In the past year,
corn’s gone, roughly, from over $2 per bushel to over $4 per
bushel.”
As for this year, he says that relief might be on the horizon.
“From
what I’ve heard,” Gregg says “the price is probably going
to stabilize or even drop. The market may be oversupplied.
We’ll have to see. Hopefully, it has plateaued.”
The effects of ethanol on corn prices wouldn’t have hurt so
much in a normal year. This is because, he explains, “most
dairy farms grow corn to feed to their cows.”
“However,
last year, there were a lot of weather problems,” Gregg says,
“a lot of flooding in central New York and the Southern Tier—and
it wiped out the corn crops of many dairy farmers. So what
they had to do was go on the open market for their feed.”
“We’re
still in recovery mode from last year,” he adds. “And you
have to also consider that the milk prices for dairy farmers
for the last two and a half years have been very low, and
energy costs have tripled, which is also a big problem.”
Asked about the new ethanol plants under development in the
state, Gregg is enthusiastic: “There are also a lot of big
corn growers across the state that have been striving to get
ethanol production going in New York for years. All of the
sudden, there are about five projects coming online, that
have pledged to buy a lot of New York-grown corn.”
“This
will be a marketing opportunity that didn’t exist before,
and,” he adds hopefully, “at a good price, to boot.”
Chad Hart is a researcher at Iowa State University’s Center
for Agricultural and Rural Development in Ames, where they
are closely monitoring all matters ethanol.
“We
do economic modeling, looking at agricultural policy and environmental
impacts,” Hart says, explaining that they focus on the effects
of ethanol production on agriculture.
Hart has noted the same changes as the farmer in the field:
“The push of ethanol on corn has been seen in the last six
months. It’s great if you’re a corn farmer, not so great if
you’re a corn user. For dairy producers, it squeezes their
profit margin.”
Hart says, however, that there is something of a silver lining
in the process of distilling ethanol. It will produce that
aforementioned alternate feed, distiller dry grains.
“Those
distiller’s grains can be utilized as a feed. I know, we’ve
seen it here in the Midwest, especially with beef cattle.”
Hart explains that “there are basically two types of ethanol
plants, wet mill and dry mill.” Wet mill produces a kind of
corn gluten as a byproduct; dry mill produces distiller’s
grains. Of course, he adds, “the nutritional characteristics
aren’t what corn was.”
Looking at prospects for the short-term future, Hart sees
high energy prices sustaining ethanol production. There is
a possible problem on the horizon, however.
“We’re
looking at the possibility,” he says, “that we’re going to
run into a short-term bottleneck here, within the next three
to five years, as we begin to produce enough ethanol to completely
fill the E10 market for ethanol.”
E10 (or E-10, the designation varies), which is 10-percent
ethanol and 90-percent gasoline, is the most common fuel formulation.
Hart explains that “most auto manufacturers would prefer not
to push it beyond that level, as they’re concerned with affecting
the engine’s performance.”
“We’re
using about 140 to 150 billion gallons of gasoline per year,”
he says. “So, if you took 10 percent of that, that would be
14 to 15 million gallons of ethanol that we would use, if
everything was blended [for E10 fuel].”
Hart notes that the United States “produced five billion gallons
last year; it looks like we’ll produce six to seven or eight
billion gallons this year. Plants are coming online that will
bring us up to 12 million gallons, approaching the maximum
amount that E10 can use.”
“The
question,” he asks, “is, how would you go beyond this? E85
is one alternative, but there aren’t that many vehicles that
can utilize the blend. I’ve heard discussions, ‘could we go
to an E20?,’ or a 20-percent blend of ethanol, but what you
need will be engine modifications to pull it off.”
Thomas Drennen was thinking about E85 vehicles recently, when
he found himself behind one on the highway.
“It
just struck me the other day, following an SUV marked ‘flex-fuel
vehicle,’ and I thought, ‘those people are probably thinking
they’re being environmentally friendly.’ And they’re not.”
The professor of economics and environment at Hobart and William
Colleges in Geneva, N.Y, explains: “It’s just completely bogus.”
“What’s
going on,” he argues, “is that the car companies, under the
CAFE [Corporate Average Fuel Economy] standards, are given
a huge loophole—if they have flex-fuel vehicles, they can
have basically double the fuel efficiency [rating] for that
vehicle. It helps the car companies achieve their targets,
but nobody’s ever going to put E85 fuel in them. It’s completely
bogus.”
The reason, of course, is that there are only a handful of
stations offering E85 in the Northeast—and most of these are
restricted for government use only. There is a plan to eventually
make E85 fuel—85 percent ethanol, 15 percent gasoline—available
at every New York State Thruway rest stop. Right now, however,
it’s almost impossible to buy it for your “flex-fuel” vehicle.
And for New Yorkers who live west of the Hudson River, it’s
just plain impossible.
Drennen sees other problems with ethanol, though, aside from
lack of availability.
“Ethanol
doesn’t have the energy content of a gallon of gas,” he points
out, meaning that a vehicle will need to burn more fuel to
get the same result. He also notes, unfavorably, the heavy
subsidies needed to produce it—around 52 cents per gallon
from the U.S. government.
There’s also the problem of efficiency: “It takes a lot of
energy to produce a gallon of ethanol. My best estimate is
that it takes two-thirds of a gallon of gas equivalent to
produce a gallon of ethanol. When you take into account the
costs of producing the corn, and harvesting it. . . .”
“If
people think this is a quick solution to our oil addiction,”
Drennen says, “they’re wrong. It’s a very, very small step.
. . . If we want to get serious about oil addiction, or pollution,
or climate change, we have to have a major change in the way
we use our vehicles. Or we have to come up with some great
alternative—and it’s not ethanol.”
In any event, corn might not be the preferred bioproduct from
which to make ethanol from in the long term, anyway. There’s
the possibility of cellulosic ethanol.
Dairyman Eric Oohms asks, “what’s going to happen with cellulosic
[ethanol], which is supposed to be a panacea? The technology
hasn’t been perfected. . . . I’ve heard people say it’s 10
years away.”
Iowa State’s Chad Hart says: “Technically, it’s feasible.
It’s a matter of making it cost effective. We’re several years
away from it.”
Cellulosic ethanol would be made from other kinds of plants—plants
that don’t require as much energy or pesticides to produce
as corn does, thus lowering the cost and increasing the value
of the end product. Hart explains that processing ethanol
from corn results in a fuel that puts out about 20 percent
more energy than is used in producing it; cellulosic ethanol
presents the possibility of an end product that puts out 200
to 300 percent more energy than is used to make it. The
savings, Hart says, come in the production of the plant, not
the fuel.
It will take years, Hart says, to solve the chemical problems
in creating cellulosic ethanol (“cellulose” here refers to
the walls within the plant’s cells, and the difficulty is
in breaking them down into complex sugars).
The prospect, then, is that corn’s value as an alternative
fuel may not last.
Eric Oohms and his family, it’s safe to assume, will take
things as they come. They love the life: “We’re enjoying ourselves.
We’re at a good age, too; we’re all in the prime of our lives,
and my father loves the fact that his farm is continuing on.”
As for this year?
“The
milk price is looking up, so that’s excellent.”
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