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Ethanol Producers On Track for Record

posted on May 26, 2006

This weekend, America remembers those who died in service to their country. Originally known as Decoration Day, Memorial Day was first observed nearly 140 years ago to honor the sacrifices of Civil War soldiers. The occasion also marks the traditional beginning of summer. But this year, soaring fuel prices threaten to reduce the number of motorists on the road. Still, the American Automobile Association claims, 37.6 million Americans will drive at least 50 miles over the weekend. Proponents of renewable fuels claim ethanol is helping to reduce gasoline prices. Last year, the president signed a series of energy policy reforms into law, including an ethanol production mandate of 7.5 billion gallons by 2012. And officials claim the ethanol industry is well on its way to fulfilling the requirement by 2008 -- four years ahead of schedule.

Ethanol Producers On Track for Record

Last year, a record 3.64 billion gallons of ethanol were made available to U.S. consumers. The most recent Renewable Fuels Association roundup shows ethanol refiners have the ability to produce 4.7 billion gallons this year alone. If construction is completed on an additional 2 billion gallons of capacity, the industry is on track to produce almost 7 billion gallons well before the 2012 deadline.

According to the Food and Agricultural Policy Research Institute, 1.5 billion bushels of corn, about 10 percent of last year's crop, was used to produce ethanol. A recent Institute study estimates 2.6 billion bushels will be used in 2006 or roughly 20 percent of a projected 11.5 billion bushel harvest.

Investors, with many farmers among them, have done well this year. According to the Institute, the estimated price of a gallon of pure ethanol is currently $2.10. This amount includes $1.86 for the fuel and 24 cents for the distiller's grains which are used as a feed supplement. Subtracting these amounts leaves a gross margin of $1.07 for every gallon of the fuel additive. Even more can be squeezed out of the kernel if the carbon dioxide gas, another co-product, is captured and sold to the food industry. Estimates by Iowa State University show 12 cents is added to every bushel of corn used in farmer-owned ethanol plants.

Anne Steckel, American Farm Bureau: " ...we are increasing ethanol production facilities and...the future is very bright for ethanol and our farmers are doing all the right things.

Despite the rosy outlook, there may be some negative fallout from ethanol production. Experts at the University of Illinois proposed a possible set of circumstances where competition for corn needed to feed hogs and corn needed to feed an ethanol plant could spark more than healthy competition for corn off the combine. For example, if corn is in high-demand, the price at the elevator could increase to the point where local hog-producers would be forced to cut back production and lose a portion of their income. Though the highly regionalized scenario is unlikely to be felt nationwide, it may have a ripple effect into how much is spent on main street of rural communities.


Tags: biofuels ethanol industry news renewable fuels