Background
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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 
, 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
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.
Biodiesel
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.