Agricultural Economics Department

 

Date of this Version

9-2008

Comments

White paper, September, 2008

Abstract

This study inquires into the spatial welfare impacts of a grain ethanol plant established in an area with a beef feeding industry. Corn producers will benefit, but by how much? Why do plants seem to price their animal feed byproduct so low that beef producers may benefit from lower feed costs, despite the higher corn price? Why do ethanol plants in some areas dry all their byproduct feed while in other areas plants sell it all in wet form? How are these outcomes affected by the density of corn production, by the density of feedlots, and by the size of the ethanol plant? The answers to these questions are important to the agents affected, but empirical evidence is not available on a sufficiently fine spatial grid to address them. Therefore the approach of this study is to construct a spatial equilibrium model to examine conditions that determine the distribution of welfare benefits from the existence of a plant. The model is driven by the plant’s choice of prices for corn and byproduct so as to minimize net feedstock cost for the plant’s capacity. These prices, and the welfare impacts on corn producers, feedlots and the plant itself, will depend upon transportation costs, the density of corn and beef production and the size of the plant.