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Study Questions Whether Ethanol Industry Can Meet Demand

posted on March 24, 2006


American beef producers have weathered the loss of some overseas markets, thanks to hot consumer demand at home. As a result, the beef industry has seen a shift in its marketing and pricing strategies.

The same thing may be happening in the grain markets, where the growing interest in renewable fuels like ethanol is forcing changes in supply and demand.

Much of the impetus for those changes comes from the government. Both Congress and the Bush administration are behind an energy policy that mandates increased use of ethanol.

According to the Renewable Fuels Association, or R-F-A, nearly 100 ethanol refineries are on-line in the U.S. while 33 more are under construction. And that's fueling strong demand for corn.

 

Study Questions Whether Ethanol Industry Can Meet Demand

The industry's contribution to the U.S. economy is undeniable. According to the RFA, the ethanol industry spent more than $5.1 billion on raw materials, other inputs, and services last year. The lion's share of the expenditures was for 1.4 billion bushels of corn, valued at nearly $3 billion. The RFA claims ethanol production represents the third largest component of corn demand after feed use and exports and will account for 16 percent of total corn utilization this marketing season.

With the corn-based fuel's chief competitor, MTBE, being phased out due to pollution problems, more motorists will depend on ethanol than ever before.

But the government says that could be a problem for the U.S. ethanol industry. Last month the Energy Department issued a report suggesting the rapid elimination of MTBE may mean that ethanol producers may not be able to meet demand this summer.

Since most of the country's ethanol production plants are located in the Midwest, the report detailed challenges facing the industry in getting its fuel to key markets along the East coast due to distribution bottlenecks.

Unlike MTBE, ethanol isn't shipped through the nation's vast network of underground pipelines. Instead, ethanol is transported in relatively small quantities on trucks, trains and barges to storage terminals where it is blended with gasoline.

Last week, the RFA responded to the study, saying the industry's challenges and their influence on gasoline prices is being overblown. The association questioned the thoroughness of the research and accused the Energy Department of creating "unnecessary fears in the marketplace."

 


Tags: agriculture biofuels ethanol industry news renewable fuels