This map showing midwestern U.S. ethanol producing areas:
is from an article by Allen Baker and Steven Zahniser : Ethanol Reshapes the Corn Market (Amber Waves, April 2006, USDA's Economic Research Service).
Ethanol capacity is increasing:
The year 2005 was marked by a flurry of construction activity in the Nation’s ethanol industry, as ground was broken on dozens of new plants throughout the U.S. Corn Belt and plans were drawn for even more facilities. As of February 2006, the annual capacity of the U.S. ethanol sector stood at 4.4 billion gallons, and plants under construction or expansion are likely to add another 2.1 billion gallons to this number (map). If this trend and the existing and anticipated policy incentives in support of ethanol continue, U.S. ethanol production could reach 7 billion gallons in 2010, 3.3 billion more than the amount produced in 2005.
The ethanol industry's demand for corn should increase. Baker and Zahniser think the increase in demand will be met in part by reduced exports. This has interesting trade implications:
If demand for ethanol reduces the availability of U.S. corn for export, one might ask how this will alter the geographical composition of U.S. exports. The 2006 Baseline suggests that among the major foreign buyers of U.S. corn, Japan and Taiwan are likely to be the least responsive to a rise in corn prices, while Canada, Egypt, and the Central American and Caribbean region are likely to be the most responsive. Japan and Taiwan both have relatively high per capita incomes and limited corn production. In contrast, Canada, another high-income country, has substantial levels of corn production and could respond to higher prices with increased output of corn, wheat, and other feed grains. Per capita income in Egypt, Central America, and the Caribbean is relatively low, and higher prices may drive these countries to cut back in corn use, increase domestic corn production, or seek out substitutes. Egypt already produces a sizable amount of corn.
Slower growth of U.S. corn exports would create new opportunities for corn producers in other parts of the world, including Argentina, Brazil, and China. Another country to watch is Mexico, where irrigated lands have accounted for about half of the increase in domestic corn production since the late 1980s. Much of this increase has taken place in the State of Sinaloa, where farmers are applying advanced agricultural techniques to obtain yields comparable to those in the United States. Sinaloa, however, is relatively distant from corn-deficit areas in Mexico, and many of these producers have counted on marketing subsidies to offset some of the transportation costs. Increased demand for corn by U.S. ethanol producers might push prices high enough that these transportation costs are more easily surmounted.
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