Friday, November 11, 2005
Good? Bad? Middle of the Road?
As of October 21, 2005, the US ethanol industry had 91 plants operation in more than 20 states. Production capacity totaled about 4.1 bil. gallons per year. Another 21 plants in additional capacity under construction, which would produce 1.2 billion gallons of ethanol. The aggressive expansion is being fueled by $2.20 per gal. ethanol. But just this week, companies and investor groups have announced intentions to build 3 more plants. 1) Cargill says it will build a 110 million gallon per year plant at Blair, NE. 2) Midwest ethanol production is breaking ground for the Missouri Ethanol, LLC plant in Laddonia, Mo. Missouri Ethanol will produce 45 million gallons of the fuel annually and will consume over 17 million bushels of corn. 3) Plans for Bootheel Agri-Energy were announced on Tuesday at Cape Girardeau, Mo., where the coal-fired ethanol plant could produce 100 million gallons of ethanol a year. Farmers know the benefits, but are there any negatives to all of this?Purdue agricultural economists Chris Hurt and Otto Doering polished their crystal balls. They say corn growers, beef producers and the dairy industry stand to gain from an ethanol boom. On the flip side, hog and poultry producers, grain elevator operators and grain shippers might be negatively affected. Soybean and wheat growers could go either way.
The incentive for continued ethanol production is fueled by the recently passed Energy Bill which called for 7.5 billion gallons of renewable fuels, primarily ethanol, to be produced yearly by 2012. That is twice the current production , and would require about 2.5 billion bushels of corn, again twice the current demand. "The renewable fuel standard is very important, because it maintains the federal subsidy on ethanol production, at least through 2012," Doering said. "That will certainly motivate people to be in the ethanol production business."
"A plant able to produce 100 million gallons of ethanol a year probably is going to increase corn prices at least 10 to 12 cents per bushel within 10 to 15 miles of the plant," Hurt said. "That certainly is going to be felt 40 to 50 miles out, as well. It may only be 2, 3, 4 cents a bushel higher at that distance, but there will be some positive influence on prices."
Higher corn prices would encourage farmers to grow more corn, leading to fewer acres of soybeans and wheat, Hurt said. Depending on market conditions, prices for those grains could rise or fall.
"On the soybean side, we'll probably see a reduction in acreage," Hurt said. "That says the supply of beans would be smaller. Our crushing capacity in the state is fixed with the plants that we have, so if the demand stays the same for crushing beans but the supply drops, that would say that the price impact would be upward. On the other hand, we're going to see the distillers' dried grains from the ethanol plants compete very heavily for some of the soybean meal demand at the soybean-crushing plants. So my guess overall is we'll probably see some weakening of soybean prices."
Distillers dried grain (DDG) is a byproduct left over when ethanol is extracted from corn. DDGs primarily substitute for protein in rations for ruminant animals like cows and sheep. In hog and poultry rations, DDGs are primarily energy substitutes, making the byproduct less valuable.
Other possible impacts from higher ethanol production include:
• A need for fewer grain elevators. "In many areas of the state, grain elevators buy the surplus corn produced in that area and find a market for the corn," Hurt said. "If that corn is used internally in the local area for ethanol, then some of those grain elevators will probably go out of business." Hurt and Doering believe some grain elevators could remain viable by serving as corn storage facilities for nearby ethanol plants.
• Lower export volumes. "The amount of corn exported from ports at the Great Lakes and Ohio River will probably decrease as, again, we see more corn used internally," Hurt said.
• A move away from traditional crop rotations. Instead of the conventional 50/50 corn-soybean rotation, farmers could shift to a 60/40 corn-soybean rotation. Planting some fields to corn in successive years could have agronomic consequences, Hurt said.
Summary:
With a versatile commodity, such as corn, any alternative use or delivery market will have impact on other uses and markets. While there is no effort to disparage the conversion of corn to ethanol, those who are involved in the agricultural economy will have to beware of the consequences of the ethanol boom.
Posted by Stu Ellis on 11/11 at 01:10 AM | Permalink
Comments
Posted by: bill de puye at May 9, 2006 3:03PM
how do i invest??????
Bill:
I would not hesitate to contact the ethanol plant organizers. It seems 3-4 were announced for Indiana just this week, in additionl to all of the others. The Renewable Fuels Association is probably the best resource for contact information.
—-Stu