Corn would cost about a dollar a bushel less if the federal ethanol mandate and subsidies did not exist, according to a study by Dr. Bruce Babcock of Iowa State University. If corn yields are low this year, prices will “soar” as ethanol makers outbid traditional users, he wrote.
In a study prepared for the International Center for Sustainable Trade and Development (ICSTSD based in Geneva, Babcock wrote that the ethanol program has had little impact on consumer food prices but a “large impact” on corn prices. If corn prices averaged $6.11 per bushel in an analytical model under current prices, they would average $5.68 per bushel without the federal blender’s credit and $5.09 per bushel without the credit or the mandate that requires the use of a certain volume of ethanol in motor gasoline, he wrote.
The impact of the ethanol program on corn prices going forward depends largely on the yield of bushels per acre, he wrote. “If yields approach record levels, then market prices will fall dramatically from current levels,” he wrote. “If yields are quite low, then prices will soar if current ethanol policies are maintained.”
The mandate is a major factor in keeping corn prices high, according to the study. Eliminating the blender’s tax credit when supplies of corn are tight has “almost no impact” on the price of corn because the mandate keeps demand high. But eliminating both the credit and the mandate itself would chop corn prices by 32 percent in a tight market, he wrote.
“This means that current U.S. ethanol policy exacerbates tight market conditions by forcing all demand adjustment to tight supplies on non-ethanol user of maize (corn), which disproportionately impacts the livestock sector,” he wrote.
Babcock’s study is available at the ICTSD website at http://ictsd.org/.
