pkamp

The Ethanol Industry: An Insider's Take

An increased demand for corn that is used for fuel decreases subsidies to farmers. Farmers used to be paid to not grow corn - they no longer need that subsidy. So your comment and conclusions are inaccurate. The oil companies have managed to grab most of the "subsidy", which is a .51/gal blending credit. Many ethanol producers are looking to get this back, and many would be willing to eliminate to unlock ethanol prices from unleaded. development of E85 markets will help, and the emergence of new retailers will provide some competition to the existing fuel retailers.

There will be an "oversupply" of ethanol if you look at traditional ethanol markets, but there are a lot of smart folks finding non-traditional markets, like E85, which is growing rapidly in the midwest. We need to support our automakers in developing not only more flex fuel engines, but also the better fuel efficient engines they are already installing in many new models. An example is GM - they have the most fuel efficient fleet of all automakers currently and are making some great cars. Also Ford is replacing the 3.0L engine in the 500 (soon to be Taurus) with a 3.5L that has more HP and 5-9 more mpg than the old engine, due to dispacement on demand and other new technologies. Plus Ford recently was ranked higher than Toyota and Honda in overall new car quality, they are making some great vehicles.

There is a lot of very inaccurate information out there about the cost and energy balance of ethanol production. In the best plants it requires one sixth the fossil fuel input that is in a gallon of ethanol. It can be produced in an efficient plant at about $1 per gallon, and in a less efficient plant at around $1.30. There is a good margin for profitability if gas prices are above $2 / gallon. They will come down in late winter, rise in spring, etc. but ethanol production costs remain stable.

Oil companies / fuel blenders are already taking advantage of ethanol's higher octane by cutting lower octane fractions at the refinery and blending in ethanol as an octane enhancer and clean air oxygenate. So if gas costs $3 at the pump, and the price of ethanol is currently in the low $2 range, I would argue that ethanol is decreasing the cost at the pump. However I respect the quoted expert's opnion. There are some additional storage and blending costs involved.

New technology innovations are already in place that continue to use less energy, less water, and provide higher value feed products from a bushel of corn. 51% of all yellow No. 2 corn went to animal feed last year, so if one could make a case of "food vs fuel", you would have to look at the beef industry first, and with the high cost of transportation, gasoline fuels a close second. Using the high protein byproducts (DDGS and HPD distiller grains) can actually decrease the overall amount of feed cost per animal if a good ration program is implemented, and there are lots of livestock producers who are doing this. When you look at the bigger picture, feeding whole corn to animals is the most wasteful use of a bushel of corn - especially when you can make 2.8 gallons of fuel from the same bushel and still produce 16-20 lbs of high quality animal feed.

Plus, many communities are benefitting from the ethanol plants - there are new revenues begin generated, new local corn markets, good local jobs, and an ethanol plant has lower emmissions than a beverage alchohol or even soda pop plant. There are some exceptions, especially with older plants, but ethanol plants are generally regarded as good corporate citizens with a small environmental footprint. If we are using 10% ethanol in our fuel blends, that is 10% of 140bbg/yr we no longer need to import. That's a good thing.

PK