January 10, 2007

Economist: Road to energy independence could be bumpy one

WEST LAFAYETTE, Ind. — On the road to making the United States energy independent, Hoosiers are likely to find potholes, highway congestion and construction zones, said Frank Dooley, a Purdue University agricultural economist who specializes in transportation.

While the ethanol boom should reduce the nation's dependence on foreign oil, delivering corn to production plants and the finished product to retailers could create a transportation problem in Indiana, Dooley said.

"The grain and transportation industries face dramatic changes over the next few years as a result of the growth of the ethanol industry," he said.

Dooley examines the ethanol industry's impact on grain shipping and transportation systems in Purdue Extension publication ID-329, "The Effect of Ethanol on Grain Transportation and Storage." The publication appears on Purdue's BioEnergy Web site, located at https://www.ces.purdue.edu/bioenergy/.

The race to build ethanol plants is a positive sign for agriculture but the plants are going up faster than the transportation infrastructure to support them, Dooley said.

"When a group of investors gets ready to build a plant, they always assume they'll have a transportation system in place and that products can move from point A to point B," he said. "We tend to take transportation for granted. But when you start something as massive as what we're talking about with ethanol in Indiana, there can be some pretty big implications."

Dooley predicts the following will occur in the next few years:

• Thousands more trucks carrying corn to ethanol plants will travel state and local roads, and for longer distances. Trucks also will transport ethanol from the plants to local or distant markets. In addition to causing traffic headaches, the increased road use could require additional construction and repair work.

• Shipments of corn within Indiana by short-haul unit trains could increase, while rail traffic from Indiana to Southeast U.S. poultry and hog markets will drop. Trains will pull more tanker cars full of ethanol.

• Smaller volumes of corn and soybeans will be exported by barge from Indiana ports along the Ohio River to terminals on the Gulf of Mexico.

• Some grain elevators within 50 miles of ethanol plants will close or become storage hubs for the plants.

Those scenarios are possible because Indiana could experience what heretofore seemed unthinkable: More corn coming into the state than going out.

"One of the forecasts coming out now is that Indiana could become a corn importing state, which is almost mind-boggling given where we've been in the past," Dooley said.

Within three years a dozen ethanol plants are expected to be operating in Indiana, producing a combined 1 billion gallons a year. To produce that much ethanol would require 385 million bushels of corn — an amount equal to about 38 percent of the corn produced annually in the state. Today more than 70 percent of Indiana's corn crop is fed to livestock within and outside the state, with 52 percent of that total shipped out of state.

The demand for corn by ethanol plants could reshape the grain industry, Dooley said.

"Most of our corn traditionally has moved from a farm to a grain elevator, and then from the elevator to different markets," he said.

"Typically, that corn is probably not going to go by farm truck much more than 10 miles. Now, when you put one of these big ethanol plants in, that plant will draw so much corn that it could expand that radius from 10 miles to 25 miles. I've heard some people say they expect to draw corn from 75 miles away.

"You might ask, does that really matter? Yes it does, because if you're talking about a hundred trucks a day traveling over a road that before had maybe a hundred a week, that's a big difference."

Dooley sees other potential losers in the ethanol sweepstakes.

"The industry that has the most to lose is the rail industry because I don't think they will be able to replace their outbound corn shipments with outbound ethanol or DDGS," Dooley said.

DDGS — distillers dried grains with solubles — is the livestock feed byproduct made after ethanol is extracted from corn.

"The state could be a potential loser if it doesn't monitor changing traffic patterns and roads," Dooley said. "For example, are we going to need to build more interchanges on the interstates? Let's say an ethanol plant pops up. How are we going to get corn off the interstate and over to that plant? The state could have bills coming in that it hadn't anticipated."

Ethanol's effect on river traffic could be mixed. While Dooley believes fewer corn-carrying barges will head down river to Louisiana, some could head upriver to feed Indiana ethanol plants. There also appears to be a strong export demand for DDGS, Dooley said.

"Some people are very concerned because the federal government and the grain industry have spent close to 50 years building export markets for U.S. grain. Now, almost overnight, a lot less corn could be exported," he said. "We could be destroying some goodwill overseas."

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Source: Frank Dooley, (765) 494-4244, dooleyf@purdue.edu

Ag Communications: (765) 494-2722;
Beth Forbes, forbes@purdue.edu
Agriculture News Page

Related Web site:
Purdue Department of Agricultural Economics: https://www.agecon.purdue.edu/


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