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Will a drought affect the price of ethanol?

Fear of Drought

Corn growers, understandably, dread the prospect of a drought.

So, when government forecasters projected strong possibilities of a drought in 2008 because of prevailing "La Niña" weather patterns, the U.S. agricultural world went on high alert. That's because La Niña, a companion weather phenomenon to the better-known El Niño, is responsible for bringing periodic drought conditions to the southwestern United States.

­La Niña is believed to be responsible for the 1930s Dust Bowl -- stirringly chronicled by John Steinbeck in The Grapes of Wrath -- as well as severe droughts during the 1950s [source: Swaminathan].

Although we didn't experience such extreme weather in 2008, corn growers in the southwestern U.S. did have a scare early in the growing season, when June flooding submerged a good portion of low-lying fields there. However, near-perfect weather for the remainder of the summer contributed to what the USDA and farmers' groups say could be a near-record crop.

That sounds good, but here's the bad news: Scientists caution that Dust Bowl-like droughts could hit regularly this century as a result of human-induced climate change. According to models developed by scientists at Columbia University's Lamont-Doherty Earth Observatory, permanent drought could settle over Mexico and a large swath of the southwestern United States sometime around 2020. Two of the dozen or so major corn producing states, Kansas and Nebraska, fall under the atmospheric swath the scientists said is in danger of permanent drought [source: Seager, et al. ]. The Corn Belt, an area that includes major producers Iowa, Illinois, Nebraska, Minnesota, Indiana, Wisconsin, South Dakota, Michigan, Missouri, Kansas, Ohio and Kentucky, is no stranger to periodic devastating droughts. Arid weather in 1988 and 2006 left farmers in this region reeling and making comparisons to the 1930s Dust Bowl. But overall, farmers have come to rely on adequate rainfall to produce an overabundance of corn.

Prior to the increased demand created by ethanol a few years ago, U.S. corn growers typically raised enough corn to meet the year's demand, plus a substantial reserve that could be used in an emergency. One source of mild grumbling within the corn-growing community is that the reserve supply has been shrinking each year as the result of added demand from ethanol producers. Over the past couple of decades, nearly 16 percent of the total corn crop was held in reserve. In 2008, if Agriculture Department projections hold true, the reserve will be closer to 6 percent [source: Kub].

We know that corn plays a vital role in our nation's economy. When there's a problem with the corn crop, the effects of that problem are felt far and wide. For more on the many markets that rely on corn, go to the next page.