Featured Research

from universities, journals, and other organizations

Ethanol Will Curb Farm Income Until Economy Rebounds, Economist Says

Date:
November 18, 2008
Source:
University of Illinois at Urbana-Champaign
Summary:
Ethanol helped drive two years of record profits for grain farmers, but also will hold income down during a looming recession that has already sliced crop prices in half, an economist says.

Ethanol helped drive two years of record profits for grain farmers, but also will hold income down during a looming recession that has already sliced crop prices in half, a University of Illinois economist says.

Related Articles


Scott Irwin says agriculture’s fortunes are now tethered more to ethanol than food, making crop growers vulnerable to sharp price swings at filling stations rather than the typically slower cost shifts at grocery stores.

“We’re just experiencing the full brunt of this new source of volatility,” said Irwin, a professor of agricultural and consumer economics. “When food prices were the main trigger, recessionary impacts were much less direct and much more gradual. Now, there’s this new connection through energy costs that immediately gets translated to agriculture.”

Energy demand has sagged amid a global economic meltdown, netting sharply lower prices for crude oil, gasoline and ethanol, a corn-based fuel additive, he said. That, in turn, reduced the amount ethanol producers can pay for corn and still break even, pulling down the market for both corn and other grains that have ridden its coattails since the ethanol boom took hold in 2006.

“The same thing that drove prices up is driving them back down,” said Irwin, who co-wrote a report with economist Darrel Good that is among five by agricultural and consumer economics faculty members on how the financial crisis affects farmers.

Corn prices climbed to nearly $8 a bushel in futures markets this summer amid strong global demand that pushed gasoline to almost $4 a gallon. But pump prices have since tumbled to nearly $2 a gallon as a credit crisis and looming recession put the brakes on driving.

Irwin says corn prices have mirrored that slide, falling to about $4 a bushel. He predicts prices will likely hover there until the economy rebounds from a recession that could be the nation’s deepest since World War II.

“Over the next couple of years, with normal weather around the world, I think we’ll see corn prices ranging between $3.50 and $4 a bushel, closer to the low end with good weather and the high end with bad,” he said. “But with a weather disaster, prices could easily spike to $5 or $6 again.”

Despite the dramatic slide, Irwin says corn prices remain well ahead of the $2.42 a bushel average from 1973 to 2006, when ethanol demand paved the way for two of the most profitable years ever for grain farmers.

“Even if we settle in at $3.50 a bushel for corn, that’s still nearly 50 percent higher than it was for 30 years,” he said.

Irwin says 2008 income will vary widely depending on whether growers locked in prices before markets began turning downward in July. Farmers who sold their crop before the slide could again see record earnings, while those who didn’t might manage small profits or just break even.

But he predicted better-than-expected profits for livestock farmers, thanks to lower feed costs as ethanol scaled down grain prices.

“One of the really interesting things that has happened in the last month-and-a-half is how the relative fortunes of crop and livestock producers have reversed at head-snapping speed,” Irwin said.

Irwin’s report is part of a five-part package developed by U. of I. economists to guide farmers through the recent financial meltdown. Other topics include an analysis of short-term credit, crop insurance, and land rental and lease negotiations.


Story Source:

The above story is based on materials provided by University of Illinois at Urbana-Champaign. Note: Materials may be edited for content and length.


Cite This Page:

University of Illinois at Urbana-Champaign. "Ethanol Will Curb Farm Income Until Economy Rebounds, Economist Says." ScienceDaily. ScienceDaily, 18 November 2008. <www.sciencedaily.com/releases/2008/11/081110153944.htm>.
University of Illinois at Urbana-Champaign. (2008, November 18). Ethanol Will Curb Farm Income Until Economy Rebounds, Economist Says. ScienceDaily. Retrieved January 30, 2015 from www.sciencedaily.com/releases/2008/11/081110153944.htm
University of Illinois at Urbana-Champaign. "Ethanol Will Curb Farm Income Until Economy Rebounds, Economist Says." ScienceDaily. www.sciencedaily.com/releases/2008/11/081110153944.htm (accessed January 30, 2015).

Share This


More From ScienceDaily



More Plants & Animals News

Friday, January 30, 2015

Featured Research

from universities, journals, and other organizations


Featured Videos

from AP, Reuters, AFP, and other news services

Nanoscale Sensor Could Help Wine Producers and Clinical Scientists

Nanoscale Sensor Could Help Wine Producers and Clinical Scientists

Reuters - Innovations Video Online (Jan. 30, 2015) A nanosensor that mimics the oral effects and sensations of drinking wine has been developed by Danish and Portuguese researchers. Jim Drury saw it in operation. Video provided by Reuters
Powered by NewsLook.com
Brawling Pandas Are Violently Adorable

Brawling Pandas Are Violently Adorable

Buzz60 (Jan. 29, 2015) Video of pandas play fighting at the Chengdu Research Base in China will make your day. Mara Montalbano (@maramontalbano) shows us. Video provided by Buzz60
Powered by NewsLook.com
The Best Foods for a Longer Life

The Best Foods for a Longer Life

Buzz60 (Jan. 29, 2015) When it comes to maintaining health in our later years, eating right and fueling our bodies with nutritious food is key. Krystin Goodwin (@krystingoodwin) highlights the best foods for a longer life. Video provided by Buzz60
Powered by NewsLook.com
Why Researchers Say We Should Cut Back On Biofuels

Why Researchers Say We Should Cut Back On Biofuels

Newsy (Jan. 29, 2015) Biofuels aren&apos;t the best alternative to fossil fuels, according to a new report. In fact, they&apos;re quite a bad one. Video provided by Newsy
Powered by NewsLook.com

Search ScienceDaily

Number of stories in archives: 140,361

Find with keyword(s):
Enter a keyword or phrase to search ScienceDaily for related topics and research stories.

Save/Print:
Share:

Breaking News:

Strange & Offbeat Stories


Plants & Animals

Earth & Climate

Fossils & Ruins

In Other News

... from NewsDaily.com

Science News

Health News

Environment News

Technology News



Save/Print:
Share:

Free Subscriptions


Get the latest science news with ScienceDaily's free email newsletters, updated daily and weekly. Or view hourly updated newsfeeds in your RSS reader:

Get Social & Mobile


Keep up to date with the latest news from ScienceDaily via social networks and mobile apps:

Have Feedback?


Tell us what you think of ScienceDaily -- we welcome both positive and negative comments. Have any problems using the site? Questions?
Mobile: iPhone Android Web
Follow: Facebook Twitter Google+
Subscribe: RSS Feeds Email Newsletters
Latest Headlines Health & Medicine Mind & Brain Space & Time Matter & Energy Computers & Math Plants & Animals Earth & Climate Fossils & Ruins