Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors

Abstract

We project U.S. ethanol production and its impact on planted acreage, crop prices, livestock production, trade, and retail food costs. The projections are made using a multicommodity, multicountry, partial equilibrium model. Results indicate that expanded U.S. ethanol production will cause long-run crop prices to increase. In response to higher feed costs, livestock farmgate prices increase enough to cover the feed cost increases. If crude oil prices increase, the U.S. ethanol sector expands. Results of a 1988-type drought scenario combined with a large mandate for ethanol consumption show higher crop prices, a drop in livestock production, and higher food prices.