USDA Chief Economist Keith Collins testified before the Senate Committee on Environment and Public Works this week about the implications of the growing biofuels industry on American agriculture.

Collins first noted that ethanol production has increased 150 percent since 2000, using about 14 percent of the US corn crop last year to produce 4 billion gallons of ethanol.

Collins also addressed the fact that while ethanol uses corn that may normally go to livestock feed, it does produce feed in the form of distillers grains. “DDGS can be used in livestock feed rations as a supply of both energy and protein. About one-third of the corn used in the production of ethanol is available as a feed in the form of coproducts feeds from dry mill ethanol plants,” he said. Limitations to using the by-product include quality concerns and drying, handling and shipping costs.

Collins goes into much detail about how ethanol must be competitive with gasoline in the marketplace. “A combination of declining gasoline prices, sharply rising corn prices, or a decline in the price premium ethanol has had relative to gasoline could curtail the expansion in ethanol production,” he stated.
He discusses corn prices, which he notes have only surpassed $3.00 a bushel four times in recent years. His analysis suggests that “corn prices will not discourage ethanol expansion unless corn prices increase to well beyond previous record-high levels.”

Collins next draws a series of conclusions about the ability of agricultural markets to adjust to rapid increases in biofuel production, which include:

1. Ethanol production will exceed expectations and could reach 10 billion gallons by 2010.
2. Gas and ethanol prices are likely to stay high enough in the near term to maintain expansion.
3. Corn ethanol returns are high enough to support a wide range of prices.
4. Corn prices will likely hit record highs in next 5-6 years.
5. Ethanol plants can continue to operate profitably even with higher corn prices.
6. US corn acreage needs to increase by about 5.5 million acres to 90 million.
7. CRP acres could be used to grow corn sustainably.
8. Other countries will likely expand corn production and exports.
9. With tighter stocks, corn will be more susceptible to market disruptions.
10. Corn ethanol alone cannot greatly reduce U.S. dependence on crude oil imports.
11. Cellulosic ethanol production appears to be the best renewable alternative.
12. Ethanol growth is manageable in the near future.

Collins takes a few minutes to discuss biodiesel, concluding that rapidly increasing demand for biodiesel will tend to push feedstock prices up, causing production costs to rise. He says, “For the 2005/06 crop year, biodiesel production accounted for 5 percent of soybean oil use, and for 2006/07, biodiesel is expected to account for 2.6 billion pounds of soybean oil or 13 percent of total soybean oil use.”

Lots more in Collins statement – which you can read on-line in its entirety here.