A new study shows that U.S. farmers will enjoy better incomes in 2011, thanks to increasing crop prices. And while that might translate into higher feedstock costs for ethanol and biodiesel producers, the report from the Food and Agricultural Policy Research Institute at the University of Missouri shows higher oil prices should offset those higher prices being paid for the two biggest biofuel feedstocks, corn and soybeans.

In my interview with Pat Westhoff, Director of FAPRI (which you can hear in its entirety over on our sister website, AgWired.com), he says the higher feedstock prices would be a huge negative if not for the higher cost of petroleum.

“These higher oil prices are allowing biofuel producers to continue to expand production, in spite of the higher costs of corn being used in those plants.”

Westhoff admits that the higher oil prices can also hurt biofuel production, as those increases seem to push up every other cost and inject a lot of uncertainty (also fed by the unknowns of what Congress will do with certain ethanol and biodiesel credits and overcoming the ethanol blend wall) into all markets, even alternative energy.

“It’s probably one of the reasons why we’re not seeing not nearly the kind of investment that we had been seeing into new biofuels plants today.”

You can hear what Westhoff had to say about FAPRI’s report and its mention of biofuels here: Pat Westhoff, Director FAPRI