|In his opening address to the 11th National Ethanol Conference Feb. 21, Renewable Fuels Assoc. President Bob Dinneen declared loudly and proudly that “ethanol has arrived.”
Dinneen ticked off fact after fact to bolster that belief with the biofuel faithful.
In 2005, “95 ethanol refineries were in production, 14 began operation, 30 began construction, 10 were expanded and the industry produced a record 4 billion gallons of fuel,” the RFA chief noted.
And, he continued, “In 2005, the U.S. ethanol industry contributed more than $32 billion to Gross Domestic Output, $5 billion to household income,” paid $3.6 billion in federal, state and local taxes, added $6 billion to net farm income, boosted corn prices by 35-cents per bushel, and supplied 153,000 jobs.
As such, Dinneen sang repeatedly, “My friends, ethanol has arrived.”
The message - boosted even more by the gravy-dripping 2005 Energy Act last August - has already been heard in Congress and the White House. Ag bigwigs in both the House and the Senate are beginning to note the not-yet-written 2007 Farm Bill could be “energy-based” rather than income supporting.
The Bush Administration’s biofuel vision foresees “a day where this industry does, in fact, stand on its own,” noted USDA Secretary Mike Johanns recently during a visit to Minnesota.
Translation: Ethanol, and presumably biodiesel, will be so profitable soon that neither will require generous federal tax breaks nor mandated usage levels.
While Johanns did not peg a date when that might arrive, his traveling partner, Gil Gutknecht, Minnesota’s most senior member of the House Ag Committee, explained later that “it takes about $1 to produce a gallon of ethanol compared to $1.60 for gasoline.”
If Gutknecht’s figures are right, ethanol makers are swimming in profit margins wider than even the gasoline gang. According to the California Energy Commission, the terminal price for ethanol in Pekin, Ill., the center of the ethanol universe, was $2.45 per gallon at the end of March.
Wow: $1 cost of production; $2.45 terminal price.
Similar math can be done on the farm: a $2 bushel of corn that yields 2.5 gallons of $2.45 per gallon ethanol makes corn worth $6.16 corn a bushel. Ethanol, indeed, has arrived.
Of course, ethanol profits aren’t calculated in their own vacuum. Seventy-dollar crude oil provides a wide, dry umbrella for the fuel’s fat margins and a 51-cent per gallon federal tax credit adds more cover.
And, too, mandated usage, now sought in Illinois and other states, pushes product onto a market that has no choice but to buy it.
Also, the oil industry’s move away from MTBE, ethanol’s only competitor in the clean air-octane boosting battle, will add to future demand.
If there are any clouds anywhere on ethanol’s horizon all are tied to its success.
For example, the March 31 USDA Planting Intentions Report showed U.S. farmers will cut 2006 corn acreage a shocking 3.7 million acres due - ironically - to sky-high energy costs.
That reduction, coupled with ethanol’s continued growth, virtually guarantees higher corn prices to farmers and substantially higher feedstock prices-lower margins to ethanol makers.
Ethanol’s climb, coupled with the cut in acres, also promises to rearrange corn exports. In fact, if 2006 ethanol production estimates are accurate (4.5 billion gallons), the domestic fuel industry will use nearly as much corn this year, 1.8 billion bushels, as USDA anticipates America will export, 1.85 billion bushels.
In 2007, however, ethanol will blow past corn exports. USDA guesses ethanol will need about 2.6 billion bushels of corn to produce an anticipated 6.5 billion gallons of the fuel. U.S. corn exports approached that altitude only twice, once during the 1970s and again in the late 1980s.
The biofuel boom has hunger advocates concerned. An adage heard in that circle now coldly criticizes the still heavily subsidized ethanol effort by noting Americans would rather make fuel to drive to DisneyWorld than “feed the world.” True, America, 5 percent the world’s population, burns 45 percent of world’s gasoline.
Our thirst, due to our wealth, is insatiable. Well, as long as we have corn.
This farm news was published in the April 12, 2006 issue of Farm World.