In corn belt, ethanol boom a bust for ranchers

In ethanol-happy Iowa, where presidential candidates are falling all over themselves to support the corn-based fuel additive and farmers are reveling in corn prices double those of a year ago, Joe Kerns sometimes hands out bumper stickers that read: "Ethanol: A complete waste of otherwise perfectly good corn."

It is not a popular opinion. "It's tough to be the lonely voice out in the desert when there's a party going on," acknowledges Mr. Kerns, director of purchasing for Iowa Select Farms, the state's largest pork producer. "But I've had enough of [ethanol]."

In the past six months, agriculture in America's heartland has been turned on its head. Corn is selling at $4 a bushel, ethanol plants have turned around dying towns, and land values and rents are soaring. It's a boom time for farmers who haven't had a really good year in several decades, but not everyone is benefiting. Livestock producers like Kerns, for instance – who depend on cheap corn for their feed – are feeling the pinch.

Agricultural economists and forecasters, meanwhile, are struggling to sort out the new dynamics. They debate whether the new fuel demands on corn are sustainable and what impact they might have on food supply.

"The whole world for agriculture here in Iowa and in the Midwest has changed," says Mike Duffy, an agricultural economist at Iowa State University. The effects vary widely for farmers, he says. "Depending on the point of view, I've heard ethanol described as the good, the bad, and the ugly."

Bill Couser is one who sees it as an unequivocal good. A corn producer who farms about 10,000 acres in Nevada, Iowa, he's thrilled about the price of corn. As the owner of one of Iowa's few cattle feedlots, he can take advantage of the cheap ethanol byproducts that cattle can eat instead of corn better than can beef producers located far from ethanol production. And as an investor in a local ethanol plant, he's looking ahead to healthy returns.

"It seems like a farmer gets one or two home runs in his career," says Mr. Couser, sitting in his office surrounded by John Deere paraphernalia and hats from cattle shows. "Is this our home run? I think so."

Moreover, when he looks around his town – at the new elementary school, swimming pool, police station, and the thriving main street – he sees a local economy that's benefiting. Sixty percent of the financing for the ethanol plant he helped start came from small investors, and they've given almost all the jobs to locals.

"Ethanol did more than just help the farmer this time," Couser says.

Couser compares what he's seeing with what his father saw in the 1970s, when corn and land values also skyrocketed, in that case due to the opening up of the international markets, especially the former Soviet Union. It's a comparison many farmers make but that can also cause some worry: After all, the '70s boom was followed by a sharp fall in the 1980s that forced many farmers out of the business.

Some experts see reasons the demand might be sustainable this time around.

"There's always questions about market responses, and how quickly will yield catch up with demand," says Dave Miller, commodity services director at the Iowa Farm Bureau. But with the US emphasizing renewable fuels right now, he says, "energy demand is rising about as fast as yield is."

Mr. Miller also brushes off concerns that so much corn going to fuel could put a pinch on the world food supply. "At $4 corn, we'll grow more corn," he says. "And we can afford to take better care of the crop."

But if the story around ethanol so far is about energy dollars going to support the nation's heartland, livestock producers are working hard to tell another side of that story.

At Iowa Select, for instance, the cost of feeding a hog has gone up about 40 percent, says Kerns – but without any adjustment yet in the price. One study at Iowa State University has predicted that if these corn prices persist, the pork industry will have to contract by 10 to 15 percent to get prices up to where they need to be for pork to be profitable.

"You want to be one of the 85 percent that sees the other side of the bubble," Kerns says, as he drives by a Iowa Falls ethanol plant that sits behind his office. For now, he thinks his operation is still sustainable. "I'm more concerned about '08 and '09."

That's one reason livestock associations like the National Pork Producers Council are lobbying for some changes. For starters, they'd like a level playing field. Now, the ethanol industry enjoys a 51-cent per gallon tax credit and a 54-cent tariff on imported ethanol – both of which the council is pushing to have expire, at the end of 2010 and 2008, respectively.

"We're subsidizing the corn ethanol production, and we don't need to do that," says Joy Philippi, the immediate past president of the council. "We believe in free trade."

She'd also like to see more good acreage released from the Conservation Reserve Program to grow corn. "I don't fault the corn growers for wanting the $4 corn," Ms. Philippi says. "I'm a corn grower; I like it, too. But if we skew the whole balance in the economy, it hurts everybody."