Ethanol ruling could open new door for farmers

Apr. 11—As farmers across Northwest Missouri ramp up work for the start of another season of raising corn, a recent announcement in Washington D.C. will open a long-awaited door for an industry facing projected downturns in income.

Eight Midwest states, including Missouri, received the green light to sell 15% ethanol year-round beginning next April after a final ruling from the Environmental Protection Agency, eliminating a previous ban on summertime sales. Almost 98% of gas sold in the U.S. is currently mixed with the lower 10% ethanol, a biofuel produced largely from corn.

With roughly 40% of corn in the U.S. going to ethanol production, the EPA's ethanol ruling could provide a noteworthy boost to the profits of corn farmers as demand increases for biofuel.

"It's going to impact demand. It'll also impact home bases a bunch," said Reid Atha, part-owner of Atha Brothers Agriculture Service. "The more aggressive ethanol plants get needing corn to process it, then all your other elevators will kind of follow suit."

Atha Brothers' large-scale operation includes managing hundreds of thousands of acres of farmland, a significant portion of which goes to raising corn every year. He expects the year-round sales rule will also benefit everyday consumers filling up at the gas pump.

"It's going to make a substantial impact. Traditionally, you know, E-15 usually reduces the cost of gasoline by $0.20 to $0.25 normally," Atha said.

A 2022 Missouri farm census showed the state had 87,887 farms, 12,000 of which raised corn. Atha is one of thousands of farmers in the region and across the U.S. projected to see lower profits in 2024 according to a USDA report.

"There's not a whole lot of demand right now. So hopefully this E15 kind of triggers that off and maybe, you know, picks some more demand here for corn and maybe hopefully that'll kind of pull us out of a jam," Atha said.

As he looks on at the few hundred acres of land for April planting, Tim Gach, a longtime educator and president of the Buchanan County Farm Bureau, takes pride in growing the highest-graded corn consistently each season.

He expects the ethanol rule will have a notable impact on demand for a product he's grown since was a kid helping his dad more than half a century ago.

"We've seen that (ethanol) industry grow. It's a good deal for farmers because now there is more of a market for their product," Gach said.

The U.S. Department of Agriculture projects the consumption of ethanol in gas could increase as much as 10% between now and 2030, depending on economic conditions. The U.S. is already one of the world leaders in producing biofuel, generating almost half of the entire global output.

According to the Renewable Fuels Association, ethanol 15% can be used in model cars from 2001 and newer, as well as light-duty trucks, SUVs and flex-fuel vehicles. Using the fuel in older cars can cause damage to the engine. Ag groups and farm leaders are pushing for nationwide implementation of the ruling.

With advances in precision agriculture and science allowing farmers to earn significant yields even with fewer farms and millions of fewer acres of land, farmers like Atha and Gach have little worries farmers could adjust to growing demand if a nationwide policy were to ever take effect.

"We are one of the most efficient, largest producers in the world of corn. Farmers in America do it better than anybody," Gach said. "Data shows if you look at the number of bushels per acre over the course of the last 15, 20 years, and it has gone up with fewer acres."

The EPA's ruling was initially announced in 2022, but concerns about supply forced the EPA to put the rule on hold until recently. The summertime sale of 15% ethanol has been banned for years due to concerns it could increase smog during warmer weather.

Outside of the eight states allowed under the rule, which also include Iowa, Nebraska and Illinois, sales of 15% ethanol are still prohibited during the summer.

"Doing eight states like that is probably a good idea. They did choose eight states that generally are high corn-producing states," he said. "... That way you can kind of test it out and they'll find out."

In addition to farm operations, ethanol producers like ICM Biofuels in St. Joseph could see a significant boost from the change.

Ruling arrives as outlook dims

In the backdrop of the EPA's decision is a report forecasting declines in farm income over the next 10 years according to a report from Mizzou's Food & Agricultural Policy Research Institute. The declines come on the heels of U.S. farmers enjoying record-high incomes in 2022.

Thus far in 2024, prices for almost all commodities except cattle have declined, and U.S. farmers are expected to make $40 billion less in 2024 than the year before.

"Looking into 2024 ... a lot of guys are penciling $100 to $200 an acre lost," Atha said. "Right now, you know, we're penciling a loss coming up in 2024."

Significant factors that could potentially mute the ethanol rule's impact on demand: rising production expenses and land prices coupled with shrinking land. Over the last four years, total costs paid by farmers to raise crops and tend to livestock in the U.S. increased by 28% to an all-time high of $460 billion in 2023.

A report from the University of Missouri showed an 11% decrease in net farm income in 2023. Missouri crop receipts declined by $840 million as well, largely due to lower yields and falling prices.

"I know at one point last year I saw over $5 for corn, right now it is set at like $4.20. So using that estimate, obviously you're not making any money," Gach said. "Most farmers will tell you in the ag business that you can't do too many years of that and make it, you can't absorb loss year after year after year."

Atha said farmers have continued to show resiliency in the face of declining prices and rising costs. In his view, market swings and technology have forced farmers to grow more in the last 10 years than they have in the previous two decades.

Limiting the carbon footprint

Gach and Atha are keenly aware of the role that limiting fertilizers and environmental awareness will play as operations related to corn and ethanol production increase.

"So eventually what each farmer is going to have to have is a carbon intensity score to sell to an ethanol plant ... which will bring down your pollution and per ethanol plant," Atha said. "It's going to be cleaner energy going down the road, especially the more that we adapt to these carbon intensity scores and farmers learn how to lower their carbon intensity."

Gach also sees precautionary benefits. While not an opponent of a recent push for electric vehicles, he thinks it's wise to have other effective fuel alternatives as the limited EV network continues to grow.

"There has to be something in between straight fossil fuels and EVs. What's there are the alternative fuels, the biofuels, things like ethanol and soy diesel." Gach said. "The end goal is to try to replace the fossil fuels that are damaging our environment. And I think there's a lot of bright minds that are out there working on that."

According to the U.S. Energy Information Administration, biofuel-petroleum blends generally result in lower emissions relative to fuels that do not contain biofuels. Research commissioned by the USDA showed ethanol and other biofuels to be relatively green, but other studies like one published in the Proceedings of the National Academy of Sciences say ethanol is a bigger contributor to global warming than pure gasoline.

The study attributes rising emissions to land use changes to grow corn, along with processing and combustion.