Lower Ethanol Content Could Mitigate Rising Costs

By Jillian MacMath, AccuWeather.com Staff Writer
August 6, 2012; 8:12 PM ET
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With experts speculating the continued increase in the cost of meat, dairy, animal feed and other corn-dependent products, a greater surplus of corn through the lessened usage of ethanol would help to lower prices across the board.

The drought and heat wave that have plagued the Midwest to central Plains have resulted in smaller corn yields and rising prices for the consumer.

But there may be a way to combat the shortage and put a little bit of money back into the pockets of consumers, one expert says.

According to Dr. James Dunn, professor of Agricultural Economics at Penn State University, decreasing the amount of ethanol in our fuel could mitigate the shortages and bring down the cost of corn and corn-dependent products.

On average, the U.S. uses 40 percent of its corn crop for ethanol.

"We have a mandate to have 10% ethanol in our gasoline. To a certain extent, that usage is optional," said Penn State University Professor of agricultural Economics, Jim Dunn.

"It's mandatory because of the law but it's possible that the government, if they chose to do so, could suspend that or lower the percentage to 7%, and that probably would relieve the pressure dramatically, should they do that," Dunn said.

Though the government has never before altered this mandate, the Congress and Senate are very well aware of the looming crisis, Dunn said.

The drought has significantly damaged the corn and soybean crop across the United States, with 88 percent of the nation now experiencing some level of drought and more than 45 percent facing moderate to severe conditions.

This past month was the most widespread, severe drought for the U.S. in July since the Dust Bowl days of the 1930s.

With experts speculating the continued increase in the cost of meat, dairy, animal feed and other corn-dependent products, a greater surplus of corn through the lessened usage of ethanol would help to lower prices across the board.

While a decrease in the percentage of ethanol added into fuel would mean an increase in the amount of gasoline, it would not make a noticeable difference in the cost of fuel.

"The day-to-day variation is such that we wouldn't really notice that kind of a change," Dunn said.

"We'll know better when the new crop report comes out, but at this point, it looks like a significant portion of [farmers] are in really pretty bad shape."

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