Local Corn Demand Matters: Iowa Corn Prices
at a Crossroads
Background: Legislation potentially impacting the ability of Iowa ethanol plants to utilize carbon capture and sequestration technology (CCS) is being discussed in the Iowa Legislature. The outcome of this debate could have a major impact on the future of Iowa ethanol production, value-added corn demand and the Iowa economy.
Scenario: The Iowa Renewable Fuels Association commissioned Decision Innovation Solutions (DIS) to conduct an all-encompassing economic impact study of the following scenario:
- Iowa ethanol plants are precluded from utilizing CCS technology via pipelines while surrounding states allow such projects to move forward.
Phase 1 Recap: Current market and policy dynamics would result in Iowa ethanol production becoming noncompetitive. As production migrates out of state by the end of the decade, Iowa ethanol production could contract by 75% with Iowa farmers losing local markets for over 1 billion bushels of corn annually.
Phase 2 Findings: Corn leaving Iowa without added value would jump from 6% to 44% by the end of the decade. Regions of the state will experience up to a 75 cent/bushel reduction in local corn basis prices, and the typical ethanol plant premium of 16 cents/bushel would disappear.
- Lower basis would cause the profit on corn production to plummet on average by 85% compared to the status quo.
- As a result, farm income would drop $43,000 for a typical 1000-acre farm split 50/50 between corn and soybeans.
- In total, statewide net farm cash income for corn farmers would decline by $1.1 billion per year.
DIS Key Conclusion: “Ethanol production in the state of Iowa has brought tens of billions of dollars in increased economic activity to the state and has been a significant factor in the rise in net farm cash income for Iowa’s farmers. That economic activity could be lost if Iowa’s ethanol plants are not enabled to be competitive with ethanol plants in other states that have access to carbon capture and sequestration via pipelines or direct injection into deep, underground saline formations.
Report Author: Decision Innovation Solutions (DIS) is the premier economic research and analysis firm for agriculture in Iowa. The leading author was David Miller, Consulting Chief Economist at DIS and former long-time chief economist and researcher for the Iowa Farm Bureau Federation.
Read the full report here. (Phase Two results are summarized in executive summary and detailed in Chapter 4)