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Bio-Fuels Take Bite Out Of Beans

posted on March 30, 2007

Environmental groups claim the focus on ethanol blends undermines attempts to force automakers to make more fuel efficient cars. Nevertheless, the boom in renewable fuels is undeniable.

According to the Renewable Fuels Association, ethanol now is blended in more than 30% of U.S. gasoline. The trade group reports 97 ethanol plants currently are producing nearly 4.5 billion gallons of the fuel annually, and 33 more plants with an annual production capacity approaching 2 billion gallons are under construction.

Corn is, by far, the predominant feedstock for current U.S. ethanol production. And with prices hovering around $4.00 per bushel (until late this week) -- farmers and analysts have been predicting a large increase in corn acreage this spring.

This week, the Agriculture Department gazed into the crystal ball and made a few predictions of its own.


Bio-Fuels Take Bite Out Of Beans

One of the annual rites of spring includes the USDA prospective plantings report. This Friday's edition showed the biofuels industry has more than a strong influence on U.S. farmers.

According to the report, corn acres will increase to 90.5 million, up almost 15 percent from last year. If realized, this would be the largest acreage planted since 1944.

Much of the shift will come from the soybean crop. Soybeans are predicted to drop by 11 percent to 67.1 million acres... the lowest amount since 1996. The largest shift will be in the Midwest, but the Southeastern region will actually see a slight increase. Industry analysts predict South America will likely pick up the slack and increase acreage by 15 to 20 percent.

In small grains, total wheat acres planted are expected to increase by 5 percent to 60.3 million. The largest rise has already been verified in winter wheat. Planted last fall, the winter varieties are expected to increase by 10 percent from 40.57 million acres to 44 million acres.

The rest of the shift to corn production can be found in the decrease in cotton planting. This year's forecast shows a 20 percent drop from last year to 12.1 million acres.

The new numbers brought the bears out of hibernation with corn heading limit down at the bell. Soybean and wheat prices also plummeted in early trading. We'll have more on the market impact of the report later in the show.


Tags: agriculture biofuels crops markets news USDA