Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors

Simla Tokgoz, Amani Elobeid, Jacinto F. Fabiosa, Dermot Hayes, Bruce Babcock, Tun-hsiang Yu, Fengxia Dong and Chad Hart

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: Projections of U.S. ethanol production and its impacts on planted acreage, crop prices, livestock production and prices, trade, and retail food costs are presented under the assumption that current tax credits and trade policies are maintained. The projections were made using a multi-product, multi-country deterministic partial equilibrium model. The impacts of higher oil prices, a drought combined with an ethanol mandate, and removal of land from the Conservation Reserve Program (CRP) relative to baseline projections are also presented. The results indicate that expanded U.S. ethanol production will cause long-run crop prices to increase. In response to higher feed costs, livestock farmgate prices will increase enough to cover the feed cost increases. Retail meat, egg, and dairy prices will also increase. If oil prices are permanently $10-per-barrel higher than assumed in the baseline projections, U.S. ethanol will expand significantly. The magnitude of the expansion will depend on the future makeup of the U.S. automobile fleet. If sufficient demand for E-85 from flex-fuel vehicles is available, corn-based ethanol production is projected to increase to about 29 billion gallons per year with the higher oil prices. The direct effect of higher feed costs is that U.S. food prices would increase by a minimum 1.1% over baseline levels.

Keywords: biofuels; food prices; corn acreage; crop prices; ethanol production (search for similar items in EconPapers)
Date: 2008-05-15
New Economics Papers: this item is included in nep-agr and nep-ene
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Published in Review of Agricultural Economics, Winter 2008, vol. 30 no. 4, pp. 604-622

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Journal Article: Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors (2008)
Journal Article: Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors (2008)
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