US, China Looking Beyond Corn For Ethanol

On Monday, the government released a report detailing that by 2012, 31% of the corn crop will be used to make ethanol. This in turn will put an upward pressure on the price of corn as a whole, increasing the price of animal feed, meat and tortilla chips. Farmers wanting to take advantage of the price increase will plant more corn, tightening the supply for other crops such as soy and wheat that would have been planted in those fields.

It's the same story that has been told and foretold over and over.

So what's the real news here? The Ethanol infrastructure, or the lack thereof. The hype is certainly real -- we've got all these plants producing ethanol and biodiesel, with more coming on-line all the time. But right now, the U.S. doesn't have any pipelines to get the stuff to where it's blended into gasoline. Instead, ethanol gets loaded on to trains and trucks and moved around by the batch. This kind of transportation is inefficient and expensive. So what is the solution? Well, the government will get back to you on that.

Actually, one of the solutions is to just turn away from corn and look at using cellulose as the base for ethanol. By expanding the inputs of ethanol production, you can expand where the ethanol refineries are located and thereby cut down on the transportation costs. If you make your ethanol from woodchips or other cellulose materials, you're not tied to the corn belt. It's not something that's cost-effective now, but the Department of Energy [DOE] is looking to put money into the research that will get it there. Monday, it announced $18 million dollars worth of new grants for people to research these issues. This brings the DOE's total biofuels research commitment to nearly $1 billion dollars. And the US isn't the only one looking beyond corn as the answer to ethanol. China recently stated that they would not fund any ethanol production that uses foodstuffs. Instead they are looking to sweet potato, cassava, cellulose and sorgo. (Although calling sweet potatoes not food strikes us as provincial. Haven't they heard of Thanksgiving?)

In the meantime, Mother Nature and the markets will price corn, and the politicians will talk about decreasing our reliance on foreign oil. If you want to make money you could search out non-corn players, or look behind the green curtain at the infrastructure, behind the ethanol hype. There's no pureplay there yet, however, so you're stuck with Midwest railways and trucking stocks. But where there's an opportunity, money is sure to follow.

Links For More Research

Ethanol Expansion in the United States: How Will the Agricultural Sector Adjust? United States Department of Agriculture, Economic Research Service May 2007

BIOFUELS DOE Lacks a Strategic Approach to Coordinate Increasing Production with Infrastructure Developments and Vehicle Needs GAO June 8, 2007

Ethanol to take 30 pct of U.S. Corn crop in 2012:GAO Reuters Jun 11, 2007 3:18PM EDT

China mulls banning food in ethanol fuel production China View 6-11-07

Comments

[johngpaladino]

No pure play on celliulstic ethanol? What about XNL?
John Paladino
[e-mail]...

[Fred Mitchel]

Check out BFRE and STKL, which hold patents on turning cellulose into ethanol. STKL has the added advantage of being into other businesses, BFRE has the advantages of being an American company (STKL is Canadian).

[Fred Mitchel]

Here's another thought that will blow you away: hytechapps.com/company

Check it out, watch the videos. It is for real.