Ethanol:

Corn Growers' Ron Litterer talks high corn prices, Bush admin's farm bill proposal

As President Bush makes a push for increased use of biofuels and alternatives, industry is responding by increasing production of corn and forging ahead with research and development of cellulosic technology. But will high corn prices turn Americans off to the president's alternative energy agenda? During today's episode of OnPoint, Ron Litterer, first vice president of the National Corn Growers Association and an Iowa corn grower, discusses the issue of corn prices and talks about ethanol subsidies and the ethanol import tariff. Litterer addresses whether or not the administration's farm bill is adequate in order to meet the aggressive targets set for alternative energy use.

Transcript

Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Ron Litterer, first vice president of the National Corn Growers Association. Ron is also a corn grower in the state of Iowa. Ron, thanks for joining me.

Ron Litterer: Glad to be here Monica.

Monica Trauzzi: Ron, the president recently released his farm bill proposal. Is there adequate support for the corn and ethanol industries? Will these industries be able to flourish based on the amount of money he's proposing?

Ron Litterer: Well, as you know Monica, the price structure has changed dramatically in the last six months for commodities. And part of that is really coming from ethanol and the demand for corn. And really, what that is doing is driving up the prices of all commodities, crop commodities. So it is making the focus on the next farm bill probably more of a change, not as concerned about prices, but as we're liking to look at it revenue is more important and protecting our revenue risks that we have in the marketplace.

Monica Trauzzi: So does it go far enough?

Ron Litterer: We think it's a good start. I think the main thing to consider here is that the budget is going to be a huge factor in what kind of a farm bill we have. If you look at the baseline spending, it's showing some dramatic cuts for agriculture. So it's going to be a challenge to design a good program with the dollars available, so we have to use those resources very wisely.

Monica Trauzzi: The president made a big push for expansion of the use of biofuels and renewables in his State of Union address. What government incentives are you looking for in order to more successfully be able to meet these goals that he's put forth?

Ron Litterer: Well, actually, we think the incentives that are in place today are pretty adequate. The Blender's Credit which encourages blenders to utilize ethanol in their gasoline, we think, is important and we want that to continue. We also believe that in the future more research is going to have to be done for cellulosic. And we think corn has a role in that also because we do have corn stover and we have the fiber part of the kernel that we're not utilizing today which we think can greatly increase the efficiency of ethanol production from corn.

Monica Trauzzi: As a corn grower are you seeing an increased push to produce more corn? How is the alternative fuel plan affecting your crop makeup?

Ron Litterer: Well, it's going to have a dramatic impact. The price of corn has risen dramatically in the last six months. And it happened last fall at harvest time so farmers could make plans for the next cropping season. And we will see a dramatic shift in acres from some of the other commodities to corn. The producers are going to respond to the market and the market is calling for more corn acres and that's what will happen.

Monica Trauzzi: What message are you hearing from the government about the future of your industry?

Ron Litterer: Well, we think it's very positive. The Energy Department has been very supportive of what we're doing. The Department of Agriculture has been very supportive. And, of course, the administration, in their last two State of the Union messages by the President, has really put the focus on renewable fuels. And so we feel we're getting a lot of support from the government right now. We think it needs to be doing that and it is.

Monica Trauzzi: You mentioned the high price of corn earlier. Why is it so high and when will it come down?

Ron Litterer: Well, first of all, I think you need to look back. Six months ago -- we've had two dollar corn. And two dollar corn relative to history is really not very high, it's low. In fact, we've had much higher prices in the past. But we've had excellent production in the last few years and so we've had actually a surplus of corn driving down the market price. Now when the ethanol demand has come on scene like it has, in a very dramatic fashion, with high oil prices really driving a lot of that, then the corn price is responding. And so even though they have come up dramatically, relative to history, you know, maybe they're not as high as what people are really thinking they are relative to history. So we think that the corn price will moderate to a point. It's going to be at a higher level or threshold than maybe it's been in the past, but maybe not as high as it currently is.

Monica Trauzzi: So should ethanol subsidies and the ethanol import tariff be removed?

Ron Litterer: Well, I think first of all the ethanol industry you have to understand is a really new industry. It's a relatively new industry and it has to compete in a marketplace where some of those that have to use their products really don't want to because we're competing against products that the oil producers sell in the marketplace. So we think those incentives have to stay in place for at least the short term, until this industry becomes more mature.

Monica Trauzzi: Using large amounts of corn for ethanol could drive up agriculture prices and turn people off to the president's alternative energy agenda. Is there a possibility that this huge push for ethanol, that cannot necessarily be supported until cellulosic ethanol comes along, that it could actually hurt the corn industry?

Ron Litterer: Well, the corn industry is only going to play a part of the role in getting to where the president talked about. He talked about 35 billion gallons of renewable fuels by 2017. Our vision is that corn starch based ethanol can provide about 15 billion gallons by 2015. We think that is a doable, realistic approach that still will allow enough corn production for feed and fuel and exports and keep our present customers supplied. So, sure, there is a limit on what corn can do here and we understand that. But for the short term corn is going to be the base, the driver that provides this renewable fuels industry the base to grow on, until cellulosic becomes more developed.

Monica Trauzzi: So when cellulosic does develop, what does that mean for the corn industry?

Ron Litterer: We think it's still -- the corn industry is going to continue to be very competitive in that market and that we can still supply a large portion of the ethanol produced. The other part of that is that the corn stover and the fiber, again, from the corn kernel are really part of the cellulosic structure. And that we can actually increase the efficiency of ethanol production from corn, part of it coming from the starch part of the kernel, the other part coming from the cellulosic portion.

Monica Trauzzi: Are you confident that the corn industry will be able to continue providing a sufficient amount of corn if E85 becomes very popular? Are you concerned at all that you won't be able to meet those targets?

Ron Litterer: Well, I think short term, if anything, we're probably going to produce, if anything, maybe more ethanol than what the market can use in a year or two. And I say that because right now the market is basically an E10 blend market. And you're right, we have to move to an E85 or a much higher level of ethanol usage in the gasoline mix to get beyond that blender's wall we call it, which is probably about 11, 12 billion gallons of ethanol. And we think we'll be there in two to three years. So I think in the short term we're going to supply very adequate amounts of ethanol. The industry is growing rapidly. That's part of the reason we've had the dramatic price in corn. And the market is going to respond. We're going to raise more corn. So it's a doable thing. I know it's a rapid change, but it's one that we think is very viable.

Monica Trauzzi: Does corn-based ethanol provide a net benefit to the environment though? Because there's a process that is required to extract the sugars from the corn. Does that process negate the benefits that you have using ethanol versus gas?

Ron Litterer: Well, there's been a lot of debate about the energy efficiency of ethanol production. And a lot of studies now are saying that we have a very positive net energy balance in producing ethanol, as much as 67 percent. The other part of this debate though is that when you look at all fuel sources you cannot burn coal in a car to power a car. It has to be a liquid fuel. So you have to compare fuels to gasoline that are liquid and ethanol competes very well in that marketplace.

Monica Trauzzi: How is your farm responding to the push for cellulosic? What changes are you making in your day-to-day business to prepare for the cellulosic?

Ron Litterer: Well, I think the cellulosic is going to be a year or two away before it really is a major impact on my farm. There's going to be a pilot plant in north-central Iowa that is going to use a current corn processing ethanol plant. And they're going to convert to using corn stover and the fiber part of the kernel and hopefully that will be up and running in two to three years. So I think that is going to be sort of the model that we'll look at going forward, where we're taking about a third of the corn stover off the land, leaving two-thirds there because of conservation and soil erosion issues that we have to leave some there and to keep the quality of the soil where it needs to be. So I think that's a good model to look at. And as we evolve this whole process I think you'll see more farms become involved in that.

Monica Trauzzi: So how far off do you think cellulosic ethanol technology is?

Ron Litterer: You know, some folks say it's two to three years, others say it's five or six, others say it's nine or 10 and I just don't know. It's going to be a few years before it's a practical, competitive thing, but it could come faster if they get some breakthroughs in research. The key is research.

Monica Trauzzi: OK. We're going to end it on that note.

Ron Litterer: Ok, well, thanks Monica.

Monica Trauzzi: Thanks for joining me.

Ron Litterer: Yes.

Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.

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