redbaron

Ethanol Producer CDS/Equity Relationship

Good thoughts, but first a question: How much do you spend to move a commodity like DDS, with it's very low valuation per pound (or per ton, as you might prefer), around the world, or around the country?

This question is at the economic heart of all the talk about biomass alternate energy, ethanol, algae energy, and all the other alternate fuel sources.

If at the end of all the research on this subject, actual economic realistic solutions are found to some of these currently researched proposal and ideas, and it cost more in terms of energy input to dry the material, and move it around the country than the actual energy recouped from the developed process, the economic reality is that you have developed a money losing process.

I have been involved in many of these economic models, and many of these research projects input the cost of ingredients as next to zero in the formula calculations. I understand that when we are throwing something away, one is tempted to rationalize the cost down to zero, or close to zero, but the reality is that when you begin to process this material by drying it, and moving it around the world, or country, or county, or wherever, the actual cost of the material is no longer zero.

As an example of this principle at work, consider the cost of moving corn from the corn belt, to another location outside of the corn belt. When a former employer built a feed plant in southern GA and found the local corn supply to be less than satisfactory (due to aflatoxin content) for animal feed use, corn had to be hauled from the Ohio River region, all the way to southern GA. That transportation added close to a dollar a bushel to the corn (at that time), and substantially increased the cost of corn in the feed formulas. The same principle is at work with some of the recently constructed ethanol plants that were built away from the corn belt and have already been shut down.

Again, how much do you spend to move something that is essentially worthless? Can you afford to move it around the world?

Biofuel Production Will Continue to Grow

Not all ethanol producers are going bankrupt, but several have. But if this is such a great idea, why don't we remove the subsidies and see what happens? I think we all know the answer.

I have verified lower gas mileage in my car when using ethanol, like Acrimonious has shown in his car. Try checking your miles per gallon when filling up in a town here in the midwest close to an ethanol plant, such as POET's plants. POET apparently promotes a little extra ethanol usage in local stations close to their plants, and I can see my mileage drop significantly when using gasoline that is supposed to be limited to 10% ethanol. I don't know how much extra they get locals to use in the towns where they have plants, but my mpg's dropped significantly when I bought gas in Laddonia, MO (POET has a ethanol plant there). I can get 24-25 miles per gallon normally, and I get only 18-19 mpg when I buy gas in Laddonia.