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USDA: ethanol output could double by 2010

U.S. ethanol output could double to 10 billion gallons annually by 2010 without igniting a food-vs.-fuel fight over whether to use corn as livestock rations or making the alternative fuel, a government economist said on Wednesday
/ Source: Reuters

U.S. ethanol output could double to 10 billion gallons annually by 2010 without igniting a food-vs.-fuel fight over whether to use corn as livestock rations or making the alternative fuel, a government economist said on Wednesday.

At a Senate Environment Committee hearing, the Agriculture Department's chief economist said the surging ethanol industry could incite record corn (maize) prices in the next five or six years to bring more land into corn production.

"There will be some costs, but it will be manageable," said chief economist Keith Collins. He said steadily rising yields and larger plantings would assure adequate supplies. Co-products of ethanol are useful feed ingredients, too.

Committee chairman James Inhofe, Oklahoma Republican, said one study suggested consumers would pay an additional $14.5 billion a year if ethanol production reached 10 billion gallons. "Corn cannot be the answer," Inhofe said, suggesting more work on cellulosic ethanol, produced from woody plants.

Collins and officials from the Energy Department and the Environmental Protection Agency said other forms of renewable energy, such as cellulosic ethanol, should be developed. A Energy Department official said 18 billion gallons was the maximum amount of corn ethanol that could be produced annually.

The 2005 energy law mandates use of 7.5 billion gallons a year of renewable fuels by 2012. U.S. plants produced 4 billion gallons last year. Output could exceed "more than 10 billion gallons by 2010 if many of the planned plants are built," Collins said.

EPA acting assistant administrator William Wehrum said the agency would unveil on Thursday a proposed final rule to implement the 7.5 billion gallon target. EPA estimates the mandate will push up production costs of motor fuels by "upwards of a penny" a gallon, he said.

"With ethanol prices at the plant of $2.25 per gallon, a dry mill plant could pay up to about $5 per bushel of corn and cover operating costs," Collins said. Futures prices for ethanol are around $2.20 and "suggest continued strong and profitable prices at the ethanol plant level."

The record season-average farm-gate price for corn is $3.24 a bushel, set in 1995/96, when stockpiles ran low.

Collins listed several conclusions about ethanol's impact on agriculture:

--High gasoline prices will encourage ethanol expansion over the next several years.

--As ethanol production expands, corn prices could set new records, especially if weather hurts production.

--Corn acreage (area) will have to expand by 5.5 million acres by 2010, to around 90 million acres, to supply enough corn for domestic use and export.

"Econometric relationships suggest that corn prices would have to rise to around $3.10-$3.20 a bushel, or near the current record high, to attract the 5.5 million more acres to corn."

--Some 4.3 million-7.2 million acres now idled in the long-term Conservation Reserve "could be used to grow corn or soybeans in a sustainable way" and expand U.S. crop output.