In his State of the Union address, President Bush issued a challenge to American farmers, scientists and entrepreneurs to quintuple the output of renewable fuels over the next decade.
With much of this burden falling on U.S. farmers, this raises the question: Are they up to the challenge?
Yes, according to two Alabama Cooperative Extension System economists, at least for now.
One of these economists, Jim Novak, an Extension economist and Auburn University professor of agricultural economics, is optimistic that corn acreage and carryover will be sufficient to meet demand through 2008. After that, though, it could be an entirely different ball game, especially if the clamor for corn-based ethanol increases, as everyone predicts.
“If weather problems or other factors reduce yields below what we've seen historically, we could have some problems with carryover,” Novak says. “Conceivably, there may not even be any.”
But that's only the beginning of the challenges corn producers may face in keeping up with what likely will be an insatiable demand for renewable fuels.
First and foremost among these challenges is nitrogen — more nitrogen to maintain or even increase corn yields as demand for this commodity grows. And the inevitable increase in nitrogen costs will leave producers scrambling to find alternative sources.
Add to that the likelihood of land rent increases in the foreseeable future.
“Landlords already are taking note of the increased demand for corn and thinking that they can extract more rent,” Novak says, adding that “if they can, they will.”
Also factoring into the picture is lingering uncertainty over the shape of the next farm bill. Granted, several key players in farm bill legislation, including the chairmen of the U.S. House and Senate Agriculture committees, have promised substantial incentives for corn- and cellulosic-derived ethanol. But it will be months before this legislation is debated, passed and finally signed into law by the president. Until then, doubts will persist.
There is also fickle Mother Nature to consider.
“We can never be sure that weather is going to cooperate,” Novak says. “If we end up with the swings many climatologists have predicted, we can't be sure what to expect in terms of yield.”
As demand increases, there is the added challenge of bringing marginal land into production.
“Some of this added acreage may not be at all suited for corn production, which means even higher nitrogen costs and changes in tillage practices — different ways of managing in general that will likely add to higher operating costs,” Novak says.
Also, much of this marginal land will be outside farm base acreage, which means that farmers will not be insulated from financial risk, at least under current rules, he says.
Holding a considerably more optimistic view is Novak's colleague, Robert Goodman, an Extension economist and associate professor of agricultural economics.
As Goodman sees it, where there is a will there is a way. Yes, there are a multitude of problems associated with increasing corn production. But the market will respond one way or another to satiate the growing demand for ethanol, just has it has adjusted to other demands in the past.
“To the first Europeans that came here on the Mayflower, the forests probably looked pretty daunting, but they broke out their little hatchets and went to work,” Goodman says.
“Likewise, Alabamians a century ago would have considered it inconceivable that more than 20 million acres then under cultivation in cotton, corn or some other crop would eventually be whittled down to roughly a million acres.”
But it happened, and the simple fact that it did teaches a lesson about how markets eventually adjust to factors such as changing demand and technological innovation, he says.
Likewise, while the prospect of converting more resources to corn and possibly other forms of ethanol may now seem daunting, Goodman is confident scientists, entrepreneurs and farmers will work out some kind of solution, much as they have in the past with similar challenges.
Goodman and Novak concede that one big factor figuring into all of this is cellulosic ethanol — namely, how quickly biomass sources such as switchgrass and wood chips can be developed into viable ethanol sources to complement corn.
During his State of the Union address, Bush insinuated that researchers are on the cusp of one or more scientific breakthroughs that will ensure these potentially plentiful sources of ethanol become commercially viable options.