Ethanol Uncertainty

Ethanol Plant

Q. What happened with the elimination of some ethanol subsidies at the end of 2011?

Rick Kment: What we saw at the end of 2011 was the dropping of the blenders’ credit. A lot of people assume that this credit went to producers, but it actually was a tool for use by those blending ethanol and gasoline, most often the petroleum companies. It was designed to be used at the discretion of the blender to keep ethanol competitive in the market back when overall production of ethanol was ramping up to meet demand. If supplies were tight it gave blenders the flexibility to offer a premium for ethanol to incentivize producers to make more. Conversely, if product supplies were adequate or building up, that credit could be applied to the back end to reduce the price of the blended fuel.

I don’t think the credit had a significant impact in overall production or demand, but last year there was a belief by many that killing the blenders’ credit would make a significant impact on ethanol production.

Q. What is driving the ethanol market now?

RK: What has really affected and continues to affect overall ethanol use on a domestic level is the renewable fuel standard (RFS) level. That was developed through the 2007 Energy Bill and it really moved the fuel market overall to focus not only on corn ethanol but to more advanced technologies such as cellulosic ethanol. The RFS mandate end game is 36 billion gallons by the year 2022, with a cap of 15 billion gallons of corn ethanol from 2015 forward. The balance is supposed to come from cellulosic sources, but that level has continued to be readjusted to a lower level due to the lack of commercial production of cellulosic ethanol to date.

Looking beyond the next two years, the incentives to move toward cellulosic ethanol production are substantial, but through 2020 we believe that the majority of ethanol will continue to be derived through corn and grain.

Q. How is ethanol policy setting up politically?

RK:  It’s really still too early to tell how the politics will shape up this year, it’s really a wild card. It has a lot to do with the economy, the political atmosphere with the election coming up — we have seen that statements by political candidates with a negative view of ethanol, in particular in Iowa, create a negative fervor with the electorate.

I do think that, with the blenders credit now gone, we’ll see more political pressure focused on changing the RFS. That would have a much more significant impact on the industry than we could imagine the blenders’ credit having. RFS levels will be the next battle point, as policy makers try to figure out where it fits in the long term structure of the energy bill and energy usage in the U.S.

Q. Are any changes in ethanol policy imminent?

RK:  In the near term we don’t expect any resolution in the biofuel debate. What’s interesting is that really every segment of energy is on the hot seat right now, from ethanol to gasoline to cellulosic to virtually all sources of renewable energy. Overall it is a political and economic mine field to champion any segment of energy – its emotionally charged and each touches on aspects of life such as safety, the economy and the food supply, in addition to energy that has nothing to do with how we power our cars.

The rallying cry in the ethanol industry is about fairness. You hear it throughout the national association that it’s not fair to take away the subsidy from us without leveling the playing field and taking subsidies away from others as well. That is a message that has been heard by the legislators that are looking for ways to cut government spending. From natural gas companies to oil importers and refineries, even down to solar and wind, there is more and more focus on what is going to be cut. I’m not saying it’s right or wrong, but that is the mentality being taken at this point.

Q. How are overseas markets impacting the ethanol industry domestically?

RK:  Domestic stocks of ethanol continued to grow from December through early February. On Feb. 3, the level was at 21 million barrels, up almost 8% over a year ago. There is less demand for exports going to Brazil because we have less of a tight supply in corn and an expected strong sugar cane crop – we did not see this last year when ethanol was exported in record quantities to Brazil. If overall supplies continue to build and demand for gasoline and ethanol remains slow, it could keep the ethanol market sluggish the first half of the year.

Q. What is production looking like this year?

RK:  Production is 2.5% above last year of this same time, but that could change significantly if corn continues to stay at $6.50 to $7.00 and we maintain burdensome levels of supply. We don’t see a market upheaval like three or four years ago, but there will be some rewinding in the market. We’re getting reports that big players like ADM will make cuts in processing. Even small changes of 1% or 2% could have substantial short to intermediate term effects on grain and ethanol prices in 2012.

Topics:

Leave a Reply

State of the Industry Stories

State of the IndustryAgriculture’s Troubled Waters
March 3, 2014
Water quantity and quality issues threaten to hamper agriculture on a wider scale in the not-too-distant future. Technology breakthroughs and improved practices are providing potential solutions. Read More
State of the IndustrySponsor Profiles: Simplot, SST And WinField Support CropLife State Of The Industry Report
January 8, 2014
The sponsor partners of the CropLife State of the Industry report have demonstrated ongoing leadership including their support of this report. Read More
State of the Industry2014 State Of The Industry: Agricultural Concerns Creep In
January 2, 2014
With many strong sales years under its belt, the agricultural community is hoping for another positive growth experience in 2014, but mindful of a few challenges that might keep this from happening. Read More
State of the IndustrySeed Systems Top Watch List
January 2, 2014
Retailers are closely following herbicide tolerance and drought resistance traits. Read More

Trending Articles

EquipmentSummer Show Preview 2014: Superior Sprayers Take The Field
July 3, 2014
In this final installment of our coverage of the major categories of Big IRON that retailers can expect to test-drive at this summer’s events, here is a look at 19 sprayers. Read More
Scouting a soybean patch at Green Valley Ag.
EmployeesCropLife Compensation Survey: Battling Talent Drain
July 2, 2014
Retailers too often lose employees to companies outside of agriculture, while recruiting efforts are most often limited to competitors and other ag-focused organizations. Read More
HerbicidesDow AgroSciences Introduces SureStart II Herbicide
June 16, 2014
The enhanced formulation has improved viscosity and increased stability under heat and controls more than 60 high-anxiety grasses and broadleaf weeds found in corn fields. Read More
HerbicidesBASF Investing $270 Million To Expand U.S. Herbicide Production
June 11, 2014
BASF has invested more than $270 million to expand herbicide production capacities in the U.S., including more than 20 new products to be launched over next two years. Read More
EquipmentGPS: 25 Years And Still Growing
June 2, 2014
The evolution of global positioning systems applications in agriculture remains ongoing as the technology hits a notable milestone. Read More
CropLife 10013 Key Acquisitions Pinnacle Has Made In The First Half Of 2014
May 29, 2014
The only thing that has reached a more frenzied pace than #plant14 might be the multiple acquisitions that Pinnacle Agriculture Holdings has made in the first half of the year. Read More

Latest News

Soybean Field
InsecticidesTranform WG, Closer SC Insecticides Receive R&D 100…
July 23, 2014
Dow AgroSciences has received the award from R&D Magazine for Transform WG insecticide and Closer SC insecticide with Isoclast active. Read More
EquipmentKinze, Raven Team Up On 4900 Planter Monitor
July 23, 2014
Kinze Manufacturing announces a partnership with Raven Industries to develop a standalone monitor solution for the Kinze 4900 series planter. With this new Read More
LegislationNew Farm Bill Continues To Confuse As Growers Await USD…
July 23, 2014
The new five-year Farm Bill eliminates many of the direct payments previously payed to growers and could benefit from USDA clarification, reports a Toledo Blade columnist. Read More
EquipmentPrecisionAg.com Relaunches With Responsive Design For M…
July 22, 2014
PrecisionAg, the worldwide leader in precision agriculture information and analysis, announces the launch of its completely redesigned website, PrecisionAg.com. Read More
FungicidesEPA OKs Two Willowood Fungicides
July 21, 2014
The EPA has approved Willowood Azoxy 2SC and Willowood AzoxyProp Xtra. two widely used broad spectrum, preventative fungicides with systemic and curative properties. Read More
Precision AgFarmers Learning Fast As UAVs Take Off
July 17, 2014
Farmers and others interested in how UAVs can be used in agricultural applications were able to learn more about the technology during the recent Precision Aerial Ag Show. Read More
CropLife 100Bobby Knight, Richard Petty To Highlight Ag PhD Field D…
July 17, 2014
Attendees at the July 24 Ag PhD Field Day at Hefty Farms will learn about the latest agricultural technologies, and get a chance to meet legendary sports figures Bobby Knight and Richard Petty. Read More
WebinarsUpcoming Webinars
July 17, 2014
Register for one of our upcoming Webinars or access our archive of past Webinars to view recordings of presentations that may be of interest to you. Read More
A finished Willmar 16-ton side-shooting tender.
TendersNew Production Facility Helps Willmar
July 17, 2014
In 1963, a group of businessmen started Willmar. Today, a half-century later, the company is one of the ag industry’s longest-running brands. Read More
FertilizerCF Industries Sells Carbon Credits To Chevrolet, Donate…
July 17, 2014
CF Industries has completed the sale of a large block of carbon reduction credits to Chevrolet, and will donate the net proceeds of $600,000 to the National FFA Foundation. Read More
CropLife 100Grainland Cooperative, Minier Cooperative Grain To Merg…
July 17, 2014
The shareholders of Grainland Cooperative and Minier Cooperative Grain Co. approved a merger of company operations effective August 1, 2014. Read More
ManagementStudy: Drought Costing California Billions
July 17, 2014
A new study has found the drought has cost the state $2.2 billion, primarily in lost farm revenue and wages. Read More
FertilizerCF Industries Resumes Production At Oklahoma Nitrogen C…
July 17, 2014
The company had shut down production at the Woodward, OK, facility in April to address an issue in one of the site’s boilers. Read More
CropLife 100Wilbur-Ellis To Relocate Agribusiness Division To Denve…
July 16, 2014
The move Eastward will allow Wilbur-Ellis’ Agribusiness Division to be more accessible to relevant geographies and is expected to enhance communication and collaboration among the division’s nearly 3,000 employees. Read More
Soybean field
FungicidesValent Launches New Seed Protection Fungicide For Soybe…
July 16, 2014
The INTEGO SUITE System contains the first new, novel seed protection fungicide chemistry registered in 30 years by the EPA for protection against Pythium and Phytophthora. Read More
Crop InputsSyngenta Drive To Thrive 10 Finalists Announced
July 15, 2014
Finalists are chosen based on the quality of their essays and photos depicting what makes them thrive. Read More
FertilizerHow To Minimize Phosphorus Losses In Runoff
July 15, 2014
Phosphorus losses from agricultural fields can be divided into three categories: flash losses of soluble phosphorus, slow leak losses and erosion events. Here's how to minimize losses in each instance. Read More
ManagementCalifornia Drought Threatens To Dry Up Farm Wells
July 15, 2014
Farmers hit hardest by California's drought could begin to see wells run dry next year, according to a new study by The Center for Watershed Sciences at the University of California, Davis. Read More