Government subsidies have fuelled proposals for new ethanol projects that plan to use Australian grains as their feedstock. Additional ethanol production will intensify competition for grain in the Australian market, particularly during drought periods. This is likely to affect Australia’s largest grain user, the livestock industry. Past empirical work has found that expansions to ethanol production will cause grain prices to increase, as a result of restrictions on grain imports. However, this study finds two factors that could moderate such increases in the price of grain: the reliance of ethanol producers on low cost feedstock to remain economically viable, and the possibility of using imported cassava instead of domestically produced grains for ethanol production.