Ethanol Clears The Air But Clouding Food Costs
Senior Editor, CNBC
Driving to your favorite steakhouse might be more energy efficient in the future--but cleaner air and better gas mileage will begin to cost you more for that t-bone platter. Higher corn prices are likely to be trickling down into areas--including prices for meat. The reason? corn is a main ingredient for making ethanol and corn is used for feeding livestock like cattle.
Jim Sartwelle is chief livestock economist at the American Farm Bureau Federation. He appeared on "Street Signs" to talk about the rising cost of corn. He says right now--prices for corn in the Texas panhandle have doubled since last fall. He said he expects price for chicken, cattle and port to rise between 5 to 10% by 2008. He gave an example: it used to cost cattle ranchers 40 cents to have a steer put on one pound from feed. It now costs 75-85 cents for the same pound.
It's not going to get pretty according to Sartwelle. He says Americans pay about 10% of their disposable income on food--and that's going to go higher.
Just before Sartwelle appeared on "Street" CNBC's Phil LaBeau talked about ethanol production. It seems only the Midwest right now is about the only place in the U.S. with E-85 gas pumps-those are the ones used for pumping ethanol into cars. LeBeau also said ethanol is not very easy to transport--and that ethanol production sites will more than likely have to be built in areas around the U.S. for Americans to get access.
FYI-the U.S. produces 44% of the world's corn--and corn requires more fertilizer than any other crop.
How much does it cost to produce 1 gallon of ethanol? About $1.10 to $1.20/gal to make the alcohol from various feed-stocks like corn, barley, potatoes, or Jerusalem artichokes. You will also have by-products which you can sell or use as animal feed, reducing the total cost down to about $.95/gal. ADM makes the most ethanol in the U.S.--25%.
Ethanol is said to be a significant market for U.S. corn, consuming more than 1.43 billion bushels in 2005. Ethanol plants have helped rejuvenate rural communities across the country by creating jobs. And ethanol helps the environment by reducing greenhouse gas emissions and displacing the harmful additive MTBE from reformulated gasoline.