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New Mexico State University

New Mexico State University

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High gas prices fuel demand for corn

Few people think of corn when they go to fill up their gas tanks, but rising gasoline prices are not just putting a strain on the nation's pocketbooks. An economist at New Mexico State University said they also are putting a strain on the nation's corn supply.

"As long as gas prices go up, corn prices will go up too," said Terry Crawford, an agricultural economics professor at NMSU. He said as the price of gasoline increases, so does the demand for alternative fuels such as ethanol, and its key ingredient, corn.

"Right now, the industry is rushing to build capacity to meet demand," he said.

For years, ethanol has been used as a gasoline additive in big cities in colder months. Ethanol helps gasoline burn cleaner and prevents air pollution. In recent years, the demand for ethanol has taken off with more need for its use as an additive and as more vehicles are being modified to run on E85, a fuel blend containing 85 percent ethanol. Government leaders have said they would like to see ethanol and other alternative fuels reduce the need for foreign oil.

"This past year the U.S. produced four to five billion gallons of ethanol," he said. "That took up 20 percent of the nation's corn crop. The industry would like to produce about seven times that amount ... so we're going to need more corn, or we need to come up with something else. In the short term, anywhere corn growers can grab land, they are taking it."

Crawford said corn growers intend to plant more than 90 million acres of corn for all purposes in 2007, up 15 percent from 2006.

As growers convert more land to corn, they are also affecting other crops as well. With less area available for other crops, there is a decrease in supply, translating to higher prices. Alfalfa and wheat growers are also earning more for their crops as demand increases from feed buyers finding it harder to purchase corn.

The U.S. traditionally exports about one-third of its corn crop. Ethanol demand is changing this number too, and driving up the price of corn tortillas in Mexico.

Crawford said he eventually sees the U.S. using sugar beets, sugar cane, wood chips and similar plants along with corn for ethanol production.

Crawford believes certain factors will eventually relieve the stress on corn. He said there are still a lot of places to drill for oil in the United States, such as Alaska and Florida. He believes, as oil prices climb, people will be more willing to drill for it. New technologies will also allow more oil to be extracted from existing fields.

Crawford said coal and nuclear power are other options, especially to fuel power plants.

"Given enough time, the U.S. will move to other power supplies, such as solar and wind," said Crawford. "The problem now is the battery technology isn't there. With solar, the sun doesn't always shine and with wind, it doesn't always blow."

Crawford said a disadvantage of ethanol is that it takes more energy to create than traditional gasoline. Vehicles get fewer miles per gallon on ethanol than traditional gasoline as well, but the alterative fuel is attractive to producers because the government pays a subsidy of 50 cents per gallon produced. This was originally designed to make ethanol more competitive when gasoline was around $1.50 a gallon.

"As long as the Middle East is volatile, ethanol is going to be profitable, even without the subsidy," said Crawford.