Farm Income Improves with No MTBE

March 16, 2000

As ethanol supporters wait for the Environmental Protection Agency to decide if California can opt out of the reformulated gasoline program, USDA has issued an analysis that shows net farm income could increase by a cumulative $12 billion over the coming decade if an ethanol derivative replaces a comparable petroleum-based product. Not only corn farmers would benefit: other feed grain and wheat farmers would, too.

The analysis assumes methyl tertiary butyl ether (MTBE) is phased out during 2000-04 and the oxygenate requirement for reformulated gasoline remains in effect. The review indicates that a four-year adjustment period is enough to enable ethanol production and distribution capacity to expand to meet the projected increase in demand for ethyl tertiary butyl ether (ETBE).

An increase in ethanol demand resulting from a MTBE phase-out would increase corn demand for ethanol use by more than 500 million bushels per year starting in 2004. The increase in corn demand would increase the average price of corn by about 14 cents per bushel per year during the projected period of 2000-10. Farm prices increase for other grains, while soybean prices decline slightly due to an increase in high-protein feeds produced by ethanol plants.

With generally higher farm prices, annual total farm cash receipts should average $1 billion higher during 2000-10. Corn cash receipts average $1.2 billion more, and net farm income should increase by about $12 billion cumulatively during the period.

Also, the increased demand for ethanol would reduce the need for emergency assistance payments and lower loan program spending should prices remain at recent levels of decline to those levels in the future.

In addition, 13,000 jobs nationwide would be created by 2010. More than a third of those jobs, 4,300, would be created in the ethanol sector; another 6,400 jobs would be created in the trade, transportation and service sectors. Farm sector jobs increase by only 575.

The potential shift to ethanol has raised questions about the sufficiency of the nation's transportation system to deliver ethanol where needed. In a letter to Sen. Tom Harkin (D-IA) that accompanied the study, Agriculture Secretary Dan Glickman said given a phase-out period of three to five years for MTBE, "there appears to be no significant transportation impediment to the use of ethanol as a replacement."

Ethanol probably would be shipped by barge to the Gulf and distributed to fuel blenders through customary shipping channels. However, the railroad would play a larger role as the demand for ethanol transportation increased and more rail connections between ethanol plants and refiners were developed.

Glickman's letter to Harkin along with the report is available on the Renewable Fuels Association web site.