MICHELE NORRIS, host:
High fuel prices and America's dependence on foreign oil have created a bull market in biofuels like ethanol. Farms that used to grow corn for people and animal feed are now also producing corn for fuel.
NPR's Jason Beaubien has that part of the story from Kansas City.
JASON BEAUBIEN: At the McCauley farm in White Cloud, Kansas, a long, yellow auger moves corn from a galvanized storage bin into the trailer of a semi. Twenty-nine-year-old Brad McCauley runs this 4,000-acre farm with his parents. He says over the last two years, they've switched from growing an equal amount of corn and soybeans to planting 75 percent of their land in corn.
Mr. BRAD McCAULEY (Corn Grower, McCauley Farms): We did that foreseeing the demand for corn in the ethanol market. And luckily with the energy bill getting passed, it's definitely been good. And if the demand is still there, then we're doing it again this year, keeping the same - if not a little more - corn.
BEAUBIEN: With corn trading at record-high prices, farmers throughout the Midwest have been planting millions of additional acres of the grain. In Kansas alone, growers produced 50 percent more corn in 2007 than they did in the previous year. And with federal mandates increasing the percentage of gasoline that must come from renewable fuels, McCauley expects the corn boom to continue.
Mr. McCAULEY: We still feel like there is going to be more demand for corn, and we're going to make more money because of that.
BEAUBIEN: But some agricultural economists are expressing concerns that the nation's increased dependence on farmers to provide the raw materials for fuel poses new dangers for the economy.
Professor BRUCE BABCOCK (Economics, Iowa State University): We all eat and we all drive. And those two sectors, they're a big part of the inflation pressures that we're seeing right now.
BEAUBIEN: Bruce Babcock is a professor of economics at Iowa State University. He says that a major drought in the Corn Belt could drive food and gasoline prices up dramatically. He also predicts that the current link between fuel and agriculture ensures that commodity prices are going to remain high.
Prof. BABCOCK: Because as soon as commodity prices - wheat, soybeans, corn prices - fall, you're going to see investment take place in capacity for making biofuels and those prices will just go back up. So unless we de-link those two, I think we're going to see, you know, fairly strong prices for quite a while.
BEAUBIEN: Other economists agree that the rapid expansion of ethanol, from less that 2 percent of the gas supply in 2006 to an expected 8 or 9 percent this year, could have major ramifications for the economy. The new federal energy law allows the renewable fuels mandate to be lifted if there was a crop failure. But any last-minute suspension of ethanol requirements would be politically difficult.
Philip Verleger, an energy analyst based in Aspen, Colorado, says while a major drought would affect food prices, petroleum refiners could adjust their production fairly quickly. He predicts that traditional gasoline refiners would probably be able to make up any shortfall in the biofuel production.
Mr. PHILIP VERLEGER (Energy Analyst): And it's that flexibility that moderates or mitigates the threat of drought in the case of corn.
BEAUBIEN: And for the first time in more than a decade, U.S. demand for gasoline dropped in January. Verleger says if this continues - and that's a big if - the entire industry will be better able to absorb production shocks, whether they come from a refinery shutdown in Texas or bad weather in the Midwest.
Jason Beaubien, NPR News, Kansas City.
NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR’s programming is the audio.