University of Illinois News Bureau

Ethanol will curb farm income until economy rebounds, economist says
11/10/08
Jan Dennis, Business & Law Editor217-333-0568; jdennis@illinois.edu

CHAMPAIGN, Ill. — Ethanol helped drive two years of record profits for grain farmers, but also will hold income down during a looming recession that has already sliced crop prices in half, a University of Illinois economist says.

Scott Irwin says agriculture’s fortunes are now tethered more to ethanol than food, making crop growers vulnerable to sharp price swings at filling stations rather than the typically slower cost shifts at grocery stores.

“We’re just experiencing the full brunt of this new source of volatility,” said Irwin, a professor of agricultural and consumer economics. “When food prices were the main trigger, recessionary impacts were much less direct and much more gradual. Now, there’s this new connection through energy costs that immediately gets translated to agriculture.”

Energy demand has sagged amid a global economic meltdown, netting sharply lower prices for crude oil, gasoline and ethanol, a corn-based fuel additive, he said. That, in turn, reduced the amount ethanol producers can pay for corn and still break even, pulling down the market for both corn and other grains that have ridden its coattails since the ethanol boom took hold in 2006.

Read the full story