The Coming Collection
The ethanol boom faces tough challenges ahead.
September 12, 2008
While I’d never claim to be clairvoyant, I’m willing to bet you’re all pondering the same question I have about the ethanol boom: When will the madness end?
With the summer in full swing and the mega-busy spring behind us, there’s a bit more time to contemplate such questions, and this one in particular leads to headaches requiring double doses of ibuprofen. Exactly which trend, vulnerability, blind spot, etc., will “deep six” the boom that has rearranged the cosmos for U.S. agriculture? And, what happens to us when it does?
Most experts agree that virtually nothing could serve to derail the “biofuel” movement, with “biofuel” being the operative word. But what happens between now and the ultimate destination — a biomass-to-fuel production system that produces biofuel at a reasonably consistent level of profitability, not to mention without the ethical baggage and economic impact of the food vs. fuel question — could serve to be a pretty bumpy ride.
Of course, in the grand American tradition of celebrating success one day only to wake up the next morning and rip it to shreds, ethanol is taking it full on the chin these days. Despite its amazing accomplishments to date, the ethanol movement has more recently been characterized as strictly a gold rush for greedy businesses to try to cash in on something that will prove completely impractical in the long run.
While it would be naive to assert that there aren’t gold diggers in the ethanol fray, let’s take a deep breath here. For many, many years, the ethanol movement existed in a state of suspended animation in the U.S., waiting for an opportunity to cash in on its hard work. I’ll never forget visiting the ethanol booth at the 2005 Commodity Classic, a modest in-line tabletop with a guy who was only slightly less lonely than the Maytag repairman. Who could blame the industry for its exuberance?
Simultaneously, row crop growers in the Midwest looking for any port in an uncertain market have rapidly embraced corn production to the tune of an estimated 90 million-plus acres in an effort to feed the 115 bioenergy plants currently online, and 79 under construction.
Now, a whole host of factors are weakening the walls of the continuously inflating ethanol balloon. The world, as well as earmarked funding in the Bush administration’s farm bill proposals, target cellulosic production methods. Land values continue to rise, tapping into farm profitability. The prospect of $4 corn might have growers salivating, but it cripples the ethanol plant’s ability to operate profitably. New plants under construction now cost significantly more than their predecessors, consequently extending the payback timeframe by years.
Then, of course, there’s the “food vs. fuel” issue. Consumers are being told alternately that food prices are going up because of corn going to ethanol, and then because of the cost of energy in general. If food prices do increase beyond the point of consumer tolerance, and the media decides to create a villain out of the ethanol industry, it won’t matter much who’s right or wrong.
All challenges aside, biofuels are here to stay. But all signs point to a market “correction” in the not too distant future that will once again challenge U.S. agriculture to adjust and adapt.