WASHINGTON, D.C — The rapid expansion of the U.S. ethanol industry hasn’t only impacted corn prices. The USDA recently released a report on the transportation impacts created by the expansion of the ethanol industry.

In the first six months of 2007, U.S. ethanol production totaled nearly 3 billion gallons - a 32 percent increase over the same period last year. According to the USDA, as of Aug. 29, 128 ethanol plants are operating in the United States, with a production capacity of 6.78 billion gallons.

In addition, another 85 plants are under construction. The USDA projects production capacity to top 13 billion gallons per year by early 2009, if not sooner.

Ethanol production is a function of several factors: feedstock availability, profitability, tax incentives and technological advances. Nearly all U.S.-produced ethanol is made from corn.

The increasing demand for ethanol and subsequent hike in corn prices have not only impacted farmers through their decision to plant more corn acreage, but it has also affected grain transportation as corn-use shifts from export and feed markets to use in ethanol production.

In theory, the economics of dry feedstock vs. finished liquid fuel transportation favor the location of ethanol plants in the Corn Belt, where feedstock is plentiful and less expensive.

According to the USDA, ethanol is now being produced in more than 20 states, with about 90 percent of production capacity centered in an eight-state area (Iowa, Nebraska, Illinois, Minnesota, South Dakota, Indiana, Kansas and Wisconsin).

While most ethanol us currently produced near heavy corn-producing states in the nation’s heartland, the quandary arises in that 80 percent of the U.S. population lives along it’s coastlines. Theoretically, that implies 80 percent of the ethanol demand is along the coastlines as well.

Demand and production of ethanol is expected to continue to increase.

In his 2007 State of the Union Address, Bush announced his goal to expand consumption of alternative fuels, including biofuels, to 35 billion gallons in 2017, effectively replacing 20 percent of the expected gasoline usage with renewable or alternative energy sources as well as improved energy efficiency.

Additionally, the California Air Resources Board recently approved the increased use of ethanol in gasoline from the current 5.7 percent volume limit to 10 percent.

The California legislature is expected to pass this new rule this fall, and the state may start blending ethanol at the higher level as soon as next year. This move would increase California’s ethanol consumption to approximately 1.6 billion gallons: about 23 percent of the current ethanol production capacity.

Legislatures in other states are considering increasing ethanol blending requirements as well, adding to the uncertainty of ethanol demand in terms of volumes, timing and geographic location. Meanwhile, U.S. automakers have incentives to increase production and sales of flexible fuel vehicles (FFVs) capable of using fuel containing 85 percent ethanol and 15 percent gasoline (E85). While it is estimated that there are more than 6 million FFVs on the road today, automakers have pledged to increase that number to 10 million by 2010 and make FFVs 50 percent of their production line by 2015.

Unfortunately, only around 1,166 gas stations – less than 1 percent of the 121,446 U.S. gas stations – sell E85 gas, and those stations are concentrated in the Midwest. That situation presents several transportation issues, including the capacity of the nation’s transportation system to move ethanol, feedstock and ethanol co-products; the availability of corn within 50 miles of ethanol plants; and the location of feedlots relative to ethanol producing areas. The report also indicated that ethanol production capacity is growing faster than originally anticipated. When President George W. Bush signed the Energy Policy Act of 2005, it called for production of 4 billion gallons of renewable fuels in 2006 and for that number to increase to 7.5 billion gallons by 2012. That timetable called for production of 4.7 billion gallons in 2007; 3 billion gallons of ethanol have already been produced in the first six months of this year alone.

In May of this year, the USDA released a separate report analyzing the effects of an expansion in biofuel demand on U.S. agriculture. While that analysis focused on two different scenarios: one where ethanol production increased to 15 billion gallons per year by 2016, and another where production increased to 20 billion gallons per during the same time frame. Both scenarios showed an increase in truck demand.

As corn production increases, transportation demand would normally be expected to increase. However, the use of corn for fuel is likely to have a mixed impact on rail, truck and barge transportation.

For example, trucks are used to ship most of the corn used by ethanol plant. But the newer and bigger ethanol plants may also use rail for inbound corn shipments.

Traditionally, rail has been the primary transportation mode for processed ethanol. According to the USDA, in 2005, 60 percent of ethanol production – approximately 2.9 billion gallons – were shipped by rail.

The USDA report indicates growth of ethanol production and the construction and expansion of new plants have not been hampered by logistical concerns.

In 2006, railroads kept up with ethanol growth. As ethanol production grew by 26 percent in one year, railroad shipments of alcohols (mostly ethanol) increased by 28 percent.

According to the USDA, rail freight is forecast to increase from 1,879 million tons in 2002 to 3.525 million tons by 2035 – and that is not including ethanol production expansions.

Similarly, truck freight is forecast to almost double from 2002 to 2020, while driver shortages are projected to reach 219,000 by 2015 – and those figures also do not take into account increased ethanol production and expansion.

The report can be found online at www.ams.usda.gov/tmd/TSB/Ethanol TransportationBackgrounder09-17-07.pdf