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Ethanol Roundup

Couple of ethanol-related stories of note in the past few days:

Corn prices hurt ethanol industry

Iowa’s ethanol industry is being squeezed by high corn prices that are partly due to the estimated 3.3 million acres of crops that have been destroyed by spring floods, Iowa Secretary of Agriculture Bill Northey said Friday.

“These kinds of prices are not profitable to produce ethanol at the current ethanol price,” Northey said at a taping of Iowa Public Television’s “Iowa Press.” “There will probably be decisions of whether they want to keep processing or not at these prices.”

Farmers can replant and still be covered by crop insurance, but coverage levels drop with each passing day, and late-planted crops could face the threat of frost in the fall, ag officials said earlier this week.

That is ironic. It is sort of like the fact that high oil prices are hurting oil refiners.

The next one spells out some of the now realized implications of tying our food supply to our fuel supply:

Flooded corn crop to bring wave of higher food prices

NEW YORK – Raging Midwest floodwaters that swallowed crops and sent corn and soybean prices soaring are about to give consumers more grief at the grocery store.

Rod Brenneman, president and chief executive of Seaboard Foods, a pork supplier in Shawnee Mission, Kan., that produces 4 million hogs a year, said high corn costs are already forcing producers in his industry to cut back on the number of animals they raise.

“There’s definitely liquidation of livestock happening,” and that will cause meat prices to rise later this year and into 2009, said Brenneman, who is also the vice chairman of the American Meat Institute.

Brenneman’s cost for feeding a single hog has shot up $30 in the past year because of record high prices for corn and soybeans, the main ingredients in animal feed. Passing that increase on to consumers would tack an extra 15 cents per pound onto a pork chop.

It’s a similar story for U.S. beef producers, who now spend a whopping 60-70 percent of their production costs on animal feed and are seeing that number rise daily as corn prices hover near an unprecedented $8 a bushel, up from about $4 a year ago.

“This is not sustainable. The cattle industry is going to have to get smaller,” said James Herring, president and CEO of Amarillo, Texas-based Friona Industries, which buys 20 million bushels of corn each year to feed 550,000 cattle.

Corn’s prices were already rising before the floods, driven up 80 percent over the past year as developing countries like China and India scramble for grains to feed people and livestock. U.S. production of ethanol, an alternative fuel that can be made with corn, has also pushed prices higher, prompting livestock owners to lobby Washington to roll back ethanol mandates.

For the record, my Dad is in the cattle business, and he at first thought the ethanol mandates were a great thing. When I testified against the proposed Montana ethanol mandate in 2005, he told my Mom “I don’t understand why he would testify against farmers.” I warned him at the time that these mandates were likely to distort markets and drive up prices in unexpected ways. I told him that I favor incentives, but mandates were not the way to go. But the government was intent on “helping”, and of course they have such a good track record on energy policy…

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June 23, 2008 - Posted by | ethanol production, food prices

14 Comments

  1. It’s difficult to mandate a bankrupt ethanol plant into producing.

    They’ll have to increase subsidies for a while until they run out of budget, and then that will be the death of corn ethanol. It would be good if there was idle corn ethanol capacity to use up surplus on bumper crop years, but I can’t see that happening.

    I think some feed wheat ethanol is a good thing, because there are poor harvest years and early frosts that leave a lot of feed wheat on the market on certain years. It’s just tough to have them run sporadically.

    In Canada, there are a large portion of mixed farms that grow their own feed. Feed grain price isn’t important to their feedlot, except when it becomes more profitable to just sell feed grain than feed it out. Fertilizer, diesel and equipment cost are the killer on a mixed grain/feedlot operation.

    Comment by Bob Rohatensky | June 23, 2008

  2. It’s an industry that is doomed to die. Mandates and bad weather are just hurrying it along.

    BTW, what is RR’s take on this?

    http://www.enn.com/top_stories/article/37472

    Comment by Rice Farmer | June 24, 2008

  3. Injecting a small amount of hydrogen may make your engine run more efficiently, but calling that “running your car on water” is foolish. Almost all the BTUs for running the engine still come from the gasoline.

    Comment by clee | June 24, 2008

  4. A couple more things about that H2 story. The various links confuse different technologies. Hydrogen burning is mixed up with hydrogen fuel cells, as if they are similar. Also, if the generator really uses only a “small” amount of electricity to split the water, then there is a definitely another reagant in the mix.

    At a minimum, the article is confused and misleading. At worst, it is a scam. It reminds me of one of those cures for cancer. “Those darned doctors couldn’t cure cancer, but me and some buddies came up with something in my garage. Don’t listen to the doctors who say this won’t work. Listen to the testimonials.”

    RR

    Comment by Robert Rapier | June 24, 2008

  5. Corn ethanol, and maybe all ethanol, is looking weaker and weaker all the time.
    A one point I liked the idea, and maybe for some countries, it makes sense. The way we do it in the USA, we are probably ending up with a energy deficit, and higher feed prices. That’s called shooting yourself in both feet.
    Increasingly, it seems that biofuels won’t be needed, if the EVs really work. Demand for crude will decline every year. There may come a day when the conventional ICE is banned from city centers as too noisy and polluting.
    I see a day when parking meters have electrical plugs. You buy electricity and a space.

    Comment by benny "peak demand" cole | June 24, 2008

  6. By the way, here is an interesting argument for coal-to-oil-to-gasoline, by connecting coal and nuke plants. It is way over my head technically. Sometimes, that stops me from having a point of view. Does anybody out there have a gauge for this:
    http://www.redorbit.com/news/business/1443891/coal_in_your_cars_tank/

    Comment by benny "peak demand" cole | June 24, 2008

  7. Why are higher corn prices blamed on ethanol? World rice production is at record levels,yet rice prices doubled since december. Nobody makes ethanol from rice. The fact is,oil is 7X higher than it was 7 years ago. And that’s driving the price of everything higher. Yes,…even corn.

    Comment by Maury | June 24, 2008

  8. A bushel of corn provides 2.7 gallons of ethanol and a little more than $3 worth of feed grain. Rack prices for ethanol are almost $3 a gallon. With corn under $8 a bushel,I don’t see how ethanol producers can lose. Farmers do have a choice. Nobody’s forcing them to make ethanol. And we’re still importing a boatload from Brazil,despite the tariffs.

    Comment by Maury | June 24, 2008

  9. The fact is,oil is 7X higher than it was 7 years ago. And that’s driving the price of everything higher. Yes,…even corn.

    But haven’t we been told that corn ethanol really has an OK energy balance, and thus shouldn’t be so sensitive to oil prices?

    The truth is, oil prices are impacting upon everything. But you can’t divert a large portion of your corn supply – and then suffer a natural disaster that wipes out a substantial number of corn acres – and not have a disproportionate impact on corn prices. This is why it is a bad idea to use prime agricultural land to grow fuel – unless you just have a tremendous excess of said land.

    Supply is related to demand through price. We increased the corn demand with the ethanol mandates, and now the floods have decreased the supply. Why would you think that wouldn’t impact corn prices?

    RR

    Comment by Robert Rapier | June 24, 2008

  10. A bushel of corn provides 2.7 gallons of ethanol and a little more than $3 worth of feed grain. Rack prices for ethanol are almost $3 a gallon. With corn under $8 a bushel,I don’t see how ethanol producers can lose.

    As I have been saying lately, ethanol prices have to go up. If it was something that wasn’t mandated, you could just imagine that everyone might go out of business. But as plants shut down, and the mandate stay the same, the price will have to climb. But the economics still aren’t good even at the numbers you show. See my post on ethanol economics:

    Corn Ethanol Economics

    You can update the numbers for today’s prices, and I think you will still see that it isn’t the slam dunk you seem to think it is.

    RR

    Comment by Robert Rapier | June 24, 2008

  11. The so-called HHO generators are most likely a scam. But in theory if you could oxygen enrich the air going into your engine you could improve efficiency – maybe.

    Texas Governor Perry is in DC today to ask the EPA for a partial waiver of the ethanol mandate. Look for the reporting to be “big oil’s governor” asking the Fed to kill little ethanol.

    I live on the edge of the Houston metropolitan area. Just a couple of miles west or south and you are in to farm land. On the road between my house and Sugarland both sides used to be planted in rice and cotton. This year it is corn, and more acres cultivated than I have ever seen. In fact I have seen very little cotton. In the fall it used to blow like snow.

    Sugarland is mostly bottom drainage land, so corn doesn’t need a lot of irrigation. But the cotton land was more marginal, it is taking up a lot of water and fertilizer.

    Comment by KingofKaty | June 24, 2008

  12. King, despite the surge in corn acreage near you, total US corn acreage is way down this year. And that was before the floods knocked out a few million acres.

    Comment by doggydogworld | June 24, 2008

  13. Benny,

    I couldn’t get to the coal and nuke to fuel story you posted, but I like the idea. Right now if you want to use gasification to turn coal or biomass into liquid fuel, you need to use some of the that feedstock to get the heat to drive the reaction, also you end up with too much carbon and not enough hydrogen, so you either dump some CO2 or add some hydrogen.

    If you had a nuclear reactor to supply the heat and hydrogen, you would get a greater volume of fuel out of the process, and you wouldn’t dump so much CO2 in the process.

    This is similar to a hybrid vehicle, but instead of putting that nuclear power into a battery, you would be putting it into the fuel before you put it into tank.

    The ideal feestocks for this are things that have low hydrogen to carbon ratios like coal, biomass, tar sands, trash, etc.

    I have linked similar stuff before.

    Purdue ressearchers called this H2CAR

    Here is a power point by Charles Forsberg from Oak Ridge National Laboratory

    And here is something on Nuke to H2 also by Forsberg

    Think of the carbon as the battery. CO2 is a dead battery. Adding H2 and energy charges the battery. The high carbon feedstocks are like partially charged batteries. Things like gasoline and diesel are close to fully charged. And natural gas is overcharged because you lose the energy density when it changes from liquid to gas. We can charge the carbon battery with nuclear power. This is the hydrogen economy without having to deal with hydrogen gas.

    Sorry, this is off topic.

    Comment by dennis moore | June 25, 2008

  14. ~ “Also, if the generator really uses only a “small” amount of electricity to split the water…”

    Of course the other possibility is that the “inventor” has discovered a previously unknown law of thermodynamics, and it is somehow possible to split water with only a “small” amount of electricity. (Cold fusion anyone?)

    If that is the case, he should be making reservations now for Stockholm and the Nobel Prize for Physics he will no doubt receive. (But if I were him, I wouldn’t be making any deposits on an airline ticket.)

    Comment by Hawkshaw | June 25, 2008


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