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Can Ethanol Industry Stand On Own Two Feet?

posted on September 7, 2007

There may be light at the end of the tunnel for those hoping to find out why billions of honeybees have been dying over the past several years. After years of "sleuthing", scientists this week think they found a suspect --- the Israeli acute paralysis virus. Next up are attempts to infect honeybees with the newfound virus to see if it is indeed the killer.

The lack of bees to pollinate some 90 varieties of vegetables and fruits has said to have cost farmers billions of dollars in lost crops.

Definitely not a "lost" crop – and even larger than expected this year - is corn. Informa Economics estimates this year's corn production at 270 million bushels above last month's projections – for a total at more than 13 billion bushels with yields forecast at 156 bushels per acre.

Driving much of that growth is the demand for ethanol production. It's a boom industry that is hoping to not go bust. But a recent study indicates ethanol may not be able to stand on its own two feet.


Can Ethanol Industry Stand On Own Two Feet?

Without a federally mandated increase in ethanol consumption, the study surmises, small plants could stop being profitable in 2011 and be operating in the red by 2013.

The research was conducted by Dr. David Peters, an agricultural economist at the University of Nebraska-Lincoln. Peters told Market to Market this week that "financial projections for a fuel whose demand is 'mostly government-driven' show that plants shouldn't be counted on as a reliable tool for rural resurgence."

The study comes as Congress tries to hammer out an energy bill that likely will contain provisions for alternative fuels. A Senate-approved measure calls for doubling annual consumption of ethanol to 15 billion gallons by 2015. The current requirement is 7.5 billion gallons by 2012, though actual consumption could meet that mark next year.

Peters examined economic prospects for two sizes of plants: those that produce 40 million gallons per year and those producing 100 million gallons annually.

The study found that a combination of high corn prices, rising energy costs, lower demand for ethanol in coming years and expiring government tax credits in 2011 could cause a 40 million-gallon plant to lose $1.4 million in 2011 if the current requirement for ethanol consumption isn't increased. The study concluded that by 2013, 100 million-gallon plants might only break even.

While emphasizing the ethanol industry still makes a positive contribution to rural communities in the form of job creation and higher corn prices, Peters said some people have bout into a "Gold Rush" type of mentality that may not pan out in the years ahead.

But, sources at the Renewable Fuels Association, or RFA, say ethanol production is a viable economic pursuit with a promising future as the country seeks to lessen reliance on fossil fuels.

RFA spokesman Matt Hartwig told Market to Market, "ethanol isn't a panacea for U.S. energy security, revitalizing rural America or [protecting] the environment, but it's a good place to start. And he said ethanol has provided an economic opportunity that many rural communities may not have seen in a generation.'

Peters said his study is merely an analysis of what could happen, and should not be viewed as a forecast of what will happen.


Tags: biofuels ethanol industry news renewable fuels