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Market conditions and policy factors are fueling the rising interest in biofuels, fuels made from biomass. There are two primary biofuels: ethanol and biodiesel. A rapid runup of oil prices over the past several years has combined with provisions of the Energy Independence and Security Act of 2007 and already existing Federal and State biofuel programs to provide economic incentives for an expansion of U.S. biofuels production. In response to the increased demand for biofuels, production of agricultural commodities that serve as feedstock for biofuels has increased. 

A classic economic situation exists when additional demand absorbs a larger share of a commodity: higher prices will affect domestic use and exports, providing for more intense demand competition between domestic industries and foreign buyers of the commodity. Higher prices also will affect farmers' production decisions as higher producer returns provide economic incentives to increase acreage, which then affects the planting of other crops. Higher prices for the commodity affect those that use the commodity; in the case of corn, higher prices increase costs for livestock producers who use corn as feed for their animals. Reverberations continue when the higher prices are translated into higher food prices at the consumer level.

A comprehensive study, Increasing Feedstock Production for Biofuels 16x16 - PDF, jointly produced by the Department of Energy and USDA, examines the economic drivers, environmental implications, and role of research in the development and production of biofuels.


Ethanol, also called ethyl alcohol, is produced by fermenting sugars from any feedstock that contains plentiful natural sugars or starches that can be converted to sugar. Ethanol, or a blend of ethanol and gasoline, can be used as a fuel. Corn is the primary feedstock used to produce ethanol in the United States today, but Brazil depends on sugarcane for its ethanol production. The market implications of this additional demand for corn (or sugarcane) extend beyond that commodity sector.

Ethanol accounts for a small share in the overall gasoline market, but use of U.S. corn for ethanol production has important implications for domestic crop and livestock production, as well as for global trade and international markets. In 2006, ethanol represented less than 4 percent (by volume) of motor vehicle gasoline supplies in the United States, but grew to about 10.6 percent in 2011. With this growth, about 40 percent of the 2012 U.S. corn crop went to ethanol production--a share projected to grow to about 35 percent most of the next decade (see Agricultural Baseline Projections). Even so, by the middle of the next decade, ethanol production (by volume) is expected to represent less than 10 percent of annual gasoline use in the United States. Thus, while corn-based ethanol can contribute to the Nation's fuel supply, that contribution is relatively small in the gasoline market, but can have large effects in the agricultural sector.

The United States and many other countries are very interested in cellulosic biomass as a potential feedstock for ethanol. Cellulosic biomass refers to a wide variety of plentiful materials obtained from plants--including certain forest-related resources (mill residues, pre-commercial thinnings, slash, and brush); many types of solid wood waste materials; and certain agricultural wastes (including corn stover)---as well as plants that are specifically grown as fuel for generating electricity. Some next-generation biofuels such as biobutanol, green gasoline, and green diesel likely will be made from traditional feedstocks such as sugar beets, corn, and sugarcane, or from new sources like algae. Green gasoline and green diesel have essentially the same chemical composition as their fossil fuel counterparts. Harnessing cellulosic biomass to produce ethanol will require the development of economically viable technologies that can break the cellulose into the sugars that are distilled to produce ethanol. No one knows for sure how long it will take to develop these technologies into commercial ventures, although the more optimistic predictions are in the neighborhood of 3-10 years. Until cellulosic biomass is successfully commercialized, however, corn will almost certainly remain the primary feedstock for U.S. ethanol production.


Made through a simple refining process called trans-esterification, biodiesel is the name of an alternative fuel made from vegetable oils that can be used in compression-ignition, or diesel, engines. The process involves mixing methanol with sodium hydroxide, then mixing that with a vegetable oil. The final products are methyl esters (biodiesel) and glycerine. Glycerine is a valuable material used in the manufacture of soaps and other products.

Methyl esters can be produced from vegetable and tree oils, animal fats, or used oils and fats. Soybeans are the dominant feedstock for producing biodiesel in the United States. In other countries--particularly in the European Union, where diesel engines are more common--other vegetable oils such as those derived from canola (rapeseed) are used. Palm oil is another source of biodiesel.

Biofuel co-products

The fermentation process produces both ethanol and a residue called distillers' grains. Distillers' grains (usually dried, and called dried distillers' grains or DDGs) can be used as animal feed. The marketing of these ethanol co-products is just one way in which ethanol producers are making their operations more profitable. Another way to increase profits is to lower transportation costs associated with feed acquisition by locating ethanol plants close to dairy or livestock production. The DDGs may be quickly transported to feed nearby livestock without needing to be dried. For larger ethanol plants and livestock operations, the manure generated by the livestock can be used to produce heat or electricity for the ethanol plant.

The growing supply of DDGs has spurred demand for detailed market information about this commodity, comparable to what exists for other feedstuffs. More information about the various types of data available is on the Data page.

Last updated: Sunday, May 27, 2012

For more information contact: Thomas Capehart and Utpal Vasavada

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