What About Ethanol?
Has there ever been a more topsy, turvy product category than ethanol? In the 2007 CropLife 100 survey, ethanol production using corn was THE big topic of conversation. Retailers reported their grower-customers were scrambling to plant more acres of corn than ever before to feed the demand for this alternative fuel source. Also, 33% of retailers polled were getting directly involved in the marketplace by investing in plants.
Now, 18 odd months later, the numbers are much bleaker. According to the 2008 CropLife 100 survey, only 10% of retailers surveyed are active in the ethanol market. Worse still, falling oil prices coupled with once-high commodity prices (which is when many purchases were made) has led to many ethanol producers going bankrupt.
“As crude oil continues to erode and corn remains where it is at or stronger, more plants will close,” observes Jim Shelton, general manager for Landmark Services Cooperative in Juda, WI. “Plants with a debt load may be forced to go back to their investors and ask for additional infusions of capital to maintain cash flow for business needs and their bank loan covenants.”
Breaking Down Walls
Besides capital, ethanol faces a potential growth-killing hurdle from the federal government. According to Wally Tyler, an energy policy specialist at Purdue University, the market is faced with a blending ceiling based upon the amount of ethanol gasoline companies are permitted to blend with petroleum-based fuels. Current federal standards set this amount at 10% of gasoline consumption.
“As a nation, we consume about 140 billion gallons of gasoline per year,” says Tyler. “If we blended ethanol with every single drop of gasoline we consume, the maximum amount of ethanol blended would be 14 billion gallons per year. But for a number of reasons, we can’t blend ethanol with every drop of gasoline. Our effective blending wall is actually about 12 billion gallons. Without a resolution of this issue, ethanol industry growth is about finished.”
Despite this fact, ag retailers are confident that demand for ethanol will move forward. “The appetite will be there,” says Steve Taylor, executive director of the Missouri Agribusiness Association. “I don’t think the ethanol mandate will go away, so the fundamental demand won’t go away.”
Seth Ricketts, president of Ricketts Farm Service, Salisbury, MO, agrees. “The ethanol business is very important to ag retail,” says Ricketts. “This represents 3.7 bushels of corn usage per year. Without it, the whole paradigm would change for our industry.”