While production costs have gone up – so too have farm real estate values. Among the numbers in this week's USDA report: the value of cropland rose 13 percent to an average of just under 24-hundred dollars per acre. USDA says much of the increase in value is driven by strong demand for non-farm uses of the land.
Also being driven by the nonagricultural sector is a value-added market for corn – ethanol.
The fuel was in such demand this summer that the price in some areas of the East Coast rose to a U.S. high of nearly $6 a gallon. Ethanol prices have receded a bit but as David Miller explains, renewable fuels like ethanol and biodiesel will likely continue to play a pivotal role in providing the energy needs of the U.S.
Last year, the ethanol industry produced a record 4.5 billion gallons for blending into America's automobile fuel. This amount easily satisfies the level mandated in the federal Renewable Fuels Standard, or RFS, which went into effect in January. The RFS requires U.S. refiners to blend an ever increasing amount of renewable fuels, either ethanol or bio-diesel, over the next seven years. By 2012, that amount will top out at 7.5 billion gallons.
Analysts are casting some doubt on whether or not the renewable fuels industry will be able to satisfy demand. The Renewable Fuels Association is confident processors can keep up the pace.
Bob Dinneen,Renewable Fuels Association: "...and some have questioned whether or not there's going to be sufficient ethanol to meet that tremendous increased demand, and absolutely there will be."
The government also is encouraging the bio-diesel industry to increase production. Last year, bio-diesel refiners put 75 million gallons on the market and are expecting to double that amount by the end of 2006.
Joe Jobe , National Biodiesel Board: "...and what we're seeing in our industry, which is rather exciting, is as the economics begin to drive this then the profitable bio-refinery concepts and the byproducts, and the other emerging industries that are supporting it, are beginning to thrive."
Rising gasoline prices are not lost on politicians--especially in an election year. Republican Congressman and gubernatorial candidate Jim Nussle of Iowa thinks that 7.5 billion gallons by 2012 is not enough. Nussle's program, "Independence from Oil With Agriculture" or IOWA for short, would increase the amount of required renewable fuels to 12 billion gallons annually.
Nussle is not alone. North Dakota Democratic Senator Kent Conrad, who is seeking re-election in 2006, is proposing the goal be 30 billion gallons by 2025 through his "Breaking Our Long-term Dependence" or BOLD energy program.
Though the predominant crop used for ethanol in the U.S. is corn, there are other crops that can be readily fermented into this alternative fuel. Iowa State University Professor Robert Brown teaches his students about the possibilities of using a less costly alternative crop.
Dr. Robert Brown, Iowa State University: "Most students choose corn for fuel and soybeans for protein. They are surprised to learn that an acre of switchgrass could yield almost twice the biofuel as an acre of corn and almost the same amount of protein as an acre of soybeans."
Somewhere in the equation are feed-stocks that are either unusable or not even considered for use in the production of ethanol. These include wood waste and corn stover. Iogen, a Canadian biotech company, is one of the current leaders in developing the technology that will breakdown these raw materials and turn them into fuel.
Ethanol is not without its critics. Some studies show converting corn to ethanol takes more energy than it yields. For their part, proponents have their own studies that show a gallon of ethanol will deliver 34 percent more energy than is used in its creation.
President George Bush: "...to confront high gasoline prices is to promote greater fuel efficiency and the easiest way to promote fuel efficiency is to encourage drivers to purchase highly efficient hybrid or clean diesel vehicles, which by the way can run on alternative energy sources."
While policy makers ponder solutions to America's energy crunch it is clear that U.S. consumers want relief from high gas prices. As dependence on foreign oil increases and gas prices continue to fluctuate interest in alternative fuels is growing.
For Market to Market, I'm David Miller.