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Ethanol Is Dead: How You Can Still Profit From It
<blockquote>Most of the feed value can be recovered and one of the by-product of ethanol is distiller's feed. This contains 90% of the protein that corn originally had.</blockquote>...
Dried distillers' grains do indeed contain most of the protein originally in the corn, but essentially none of the original starch. (Overall, around 30% by weight of the original corn kernel is left over as DDGs.) That starch, unprocessed, may not be digestible by humans, but it certainly is by hogs and poultry. DDGs, however, is a poor feed for these animals, and only relatively small amounts can be added to their diets. (For cattle, the limit is around 40%.) That is why the pork and poultry producers are so against the subsidization and mandating of ethanol.
Enes K. also also notes that ethanol has a higher octane value than gasoline. Very true. He then points out that "if an engine is operated at higher pressure, it will operate more efficiently and the result will be higher gas mileage". Also true. But no commercial automobiles are being produced in, or imported into, America that are optimized to run on ethanol. Check out the EPA fuel-economy numbers for flex-fuel vehicles -- vehicles that can run on any blend of ethanol and gasoline up to 85% ethanol. They show, consistently, 25% lower miles per gallon running on E85 than on gasoline -- i.e., consistent with the energy difference between E85 and gasoline. Moreover, most of those vehicles have huge -- typically 5.3 litre -- engines. It is not for nothing that the National Ethanol Vehicle Coalition sells bumper stickers that owners can affix to their vehicles, proudly proclaiming them as ethanol guzzlers.
Most curiously, Enes asserts that, because the ethanol credit goes to blenders, "the producers and people developing the technology receive a trickle down effect at best". Gee, then if all the benefit is being pocketed by the blenders (i.e., gasoline wholesalers) why has the Renewable Fuels association and the National Corn Growers Association fought so hard for the continuance and extension of the blenders credit? The reason they have is because the credit does is raise the price that blenders are willing to pay for ethanol (since the blenders credit is like a partial refund), which means higher prices for ethanol producers. Ethanol producers, in turn, are able to pay more for corn, which "trickles down" to farmers. But I suppose those who maintain -- against all logic -- that ethanol has NOTHING to do with the rising price of corn will never believe that.
Avcacio quotes a blogger for his numbers. He should have read the original document more closely, which is an article by Richard K. Perrin, a Professor in the Department of Agricultural Economics, University of Nebraska, Lincoln. Professor Perrin does NOT say that ethanol contributed only 3% to the rise in the price of corn. What he says, in fact, supports my original point:
<blockquote>It finds that ethanol is responsible for no more than 30-40% of the [coarse] grain price increases of the last 18 months. Food prices in the US increased about 16% over the last five years, 7% over the past 18 months, but rising grain prices have contributed only about a 3% cost increase over these periods.</blockquot...
Note, he speaks of a contribution of 30-40% to the increase in grain prices (which themselves essentially doubled in price between January 2006 and January 2008), not 3%. Note Perrin was working on the basis of prices through the early part of the year, and does not take into consider the recent surge in corn prices.
Note also that Perrin takes 2001 as the baseline. In both 2001 and 2002, world use of coarse grains (corn, barley, oats, sorghum) grew by only 20 million metric tons per year. In 2003 it grew by around 50 million metric tons and in 2004 by around 70 million metric tonnes. About three-quarters of that growth came from non-ethanol uses. The rate of increase in growth in 2005 slowed slightly, to 70 million metric tonnes. Over this whole period, coarse grain prices (in $ terms) increased by around 6% per year. (Price data are from the FAO.)
In 2006, however, demand jumped once again, this time by almost 100 million metric tonnes per year. Of that increase, almost 1/3 of the increase was U.S. corn used for ethanol. In 2007, the share of U.S. corn for ethanol in the increase in global coarse grain use was almost 40%. Its share in the increase of corn alone (which accounts for 70% of world coarse grain consumption) was even greater, at least 50%. (Note, also, that additional corn was used for conversion to ethanol in Canada and China.) In 2006, corn prices rose by 24% and in 2007 by an additional 34%. Already, in 2008, average prices for the year to date are 45% above those in 2007.
The reason that the effect of rising grain prices in the United States seems so small is that the contribution to total expenditure on food (45% of which is meals eaten outside the home) is so small is because the denominator, $1.1 trillion per year, is so large. But even a 1.2% to 1.6% increase in food prices translates to an increased food bill of $13 billion to $18 billion per year.
As a percentage of consumer income, the increase in prices comes out to an even smaller share. But I leave the last words to Perrin himself:
<blockquote>The value of grain in US consumers' expenditures constitutes only about one-half of one percent of consumer income, while in food insecure countries it may constitute 20% or more of total consumer income. Thus a doubling of grain prices can absolutely devastate the world's most food insecure families in poor countries and put them at the edge of starvation, even though it constitutes a barely-noticeable inconvenience to most families in the U.S. If U.S. ethanol is responsible for as much as 40% of grain price increases, simple cost pass-through reasoning indicates that ethanol may be responsible for as much as 12% (40% of 30%) of food price increases in food-insecure areas.</blockquote&...
Ethanol Is Dead: How You Can Still Profit From It
In answer to PoliEco: True, not all ethanol is corn ethanol. But thanks to years of subsidies to the corn industry; state and federal subsidies for the construction of ethanol plants in the corn belt; and tariffs on imports of ethanol from Brazil, 95% of the ethanol produced in the United States is derived from corn.
In answer to Rickrents: the Governor of Texas is not so much concerned about protecting Exxon as in reducing the price of feed for the livestock industry.
Ethanol Is Dead: How You Can Still Profit From It
Even the industry dares not make such an outrageous and clearly unrealistic claim. Indeed, less than two years ago it was taking full credit for driving up the price of corn by 50% -- above the trigger price for price-linked crop subsidies -- and thus saving the federal government several billion dollars a year in commodity payments. (Of course, the industry generally failed to mention in the same breath that, in its place, the federal government had to spend several billion dollars on ethanol subsidies in the form of tax credits to blenders.)
What the 3% figure refers to is the contribution that the rise in the price of corn has had on the consumer price index (CPI) for food. That may not sound like a large number, but when you consider that consumer expenditure on food in the United States is now on the order of $1.1 trillion a year, 3% is more than $30 billion per year -- far larger than the "savings" achieved by no longer having to pay out counter-cyclical or marketing loan payments to corn farmers.
Obama's Misguided Ethanol Policy
There's nothing particularly wrong with biofuels per se. But there is a whole lot of wrong with the subsidies, import tariffs and consumption mandates that are distorting not only the energy market but agricultural markets as well.
Ethanol Is Oversold: Three Bounce Stocks - Barron's
The purported savings from ethanol are marginal and localized. According to DTN Ethanol Center, the national average Fuel Ethanol Rack Price on 3 June was $2.81 per gallon. Adjusting for the lower energy content of ethanol compared with gasoline, that is around $4.00 per gallon of gasoline equivalent. The average gasoline price on 26 May (the latest date available) was $3.94. So, please explain how ethanol is making gas cheaper.
Archer Daniels Midland: Profiting More From Food Than Fuel
Archer Daniels Midland: Profiting More From Food Than Fuel
An Energy Policy that Makes Cents (and Sense)
While I think most studies show there is value to society from government funding of fundamental research, what Mr. Ftizsimmons is calling for here is a much more government-directed funding of specific technologies. Is there reason to hope that the outcome of such a grand project will be any different than it has been so far? According to a recent study by the Government Accountability Office (for a summary, click here: www.researchrecap.com/.../), "[W]hile DOE has spent $57.5 billion over the past 30 years for R&D on these [advanced energy] technologies, the nation’s energy portfolio has not dramatically changed—fossil energy today provides 85 percent of the nation’s energy compared to 93 percent in 1973."
Mr. Fitzsimmons, acknowledges that GM and Ford, because of their dedication to pick-up trucks and SUVs, "will be out of business, or at least completely marginalized, within the next 3 years." So, let them live with the consequences. Why should taxpayers come to their rescue? Rather than bail out the Big 3, the government should remove obstacles to Americans gaining access to more-efficient vehicles produced by other companies. In France, the energy-efficiency of the CURRENT new car fleet is already at the level of the much-vaunted U.S. CAFE standard for 2020.
In short, my sentiments are similar to those of MMarkkkk and vboring. However, MMarkkkk calls on people to drive at 55 MPH voluntarily. All well and good, and my father and I have tried it. It is down-right frightening to drive at 55 MPH when SUVs are zooming up to your tail at 80 MPH and then swerving around you at the last minute. (And once a state trooper pulled my father over for driving at 54 MPH in on a stretch of highway where the max speed limit was 55 MPH -- he wanted to know if something was the matter with his car!) Let's start, in other words, with enforcing the speed limits we already have!
Ethanol -- Tracking the Presidential Candidates: Hillary Clinton
Ethanol: A Few Myths Debunked
Well, we've certainly see that Khosla's prediction that ethanol policy would not affect food prices was inaccurate! Oh, yes, there is a lot of cropland around -- especially if you are willing to plant monocultures on fragile, erodible CRP (Conservation Reserve Program) land, plow up prairie grass, and ignore the environmental consequences of less-frequent crop rotations. And, of course, we'll assume there is no risk at all of large-scale drought or a pest-related crop failure. Those only existed in Biblical times, right?
The differences between the USA's situation and Brazil with respect to ethanol are much greater than the similarities. Brazil has fewer people, fewer and smaller cars, which are driven less. As a result, their consumption of gasoline plus ethanol is less than 6% of U.S. consumption of these fuels.
As investors, readers of this blog should worry about the dependency of the U.S. biofuels industry on low crop prices and high oil prices, but especially the continued maintenance of <a href="www.newsday.com/news/o...
">slogan-deter... mandates, the $0.54/gallon import tariff, the $0.51/gallon volumetric ethanol excise tax credit, and a whole raft of other federal-and state-level subsidies and tax breaks. -- Ron Steenblik, Global Subsidies Initiative
Ethanol: A Few Myths Debunked
The differences between the USA's situation and Brazil with respect to ethanol are much greater than the similarities. Brazil has fewer people, fewer and smaller cars, which are driven less. As a result, their consumption of gasoline plus ethanol is of U.S. consumption of these fuels.
As investors, readers of this blog should worry about the dependency of the U.S. industry on low crop prices and high oil prices, but especially the continued maintenance of , the $0.54/gallon import tariff, the $0.51/gallon volumetric ethanol excise tax credit, and -- Ron Steenblik, Global Subsidies Initiative
Ethanol Stocks: Six Reasons To Be Cautious
As for the risk of a cost-price squeeze for ethanol producers, such an outcome is foreseen in our recent study, "Government Support for Ethanol and Biodiesel in the United States", which can be downloaded for free from globalsubsidies.org/ar...;var_mode=calcul
Democrat Victory: Ethanol Bubble Underway?
How to Ramp Up Ethanol Use? Free Parking!
I would tend to agree with the comments by Brandon Laughren. The current political obsession with E85 is diverting attention from more-efficient approaches to reducing petroleum uses and greenhouse gas emissions.
While other countries are producing flex-fuel vehicles that are otherwise similar to their existing -- and almost always more fuel-efficient -- fleet, the E85-capable vehicles on offer in the United States are predominantly gas guzzlers, whether one looks at the 2007-year models (75% of which have 5.3-liter engines) or the proportion of sales (latest statistics, from 2005, show 75% were pick-up trucks or SUVs).
In a recent study we published (globalsubsidies.org) we argue that, given the inefficiency of the current flex-fuel fleet -- especially when running on E85 (which imposes a 25% volumetric fuel penalty) -- and the taxpayer cost of keeping a typical E85 vehicle in that fuel over the course of a year (more than $500 per vehicle in subsidies), money spent favoring E85 vehicles and infrastructure is misguided and, frankly, wasteful. To the extent that there are any benefits to the country from increased ethanol use, those benefits accrue whether the ethanol is consumed as E10 or E85.
Consider this, based on EPA ratings, vehicles that rank among the least-efficient of the 2007 models (8 out of the 34 ranked) consume 2/3 as much gasoline even running solely on E85 (i.e., with only 15% gasoline in the tank) as a Honda Civic Hybrid running solely on G100 (100% gasoline).
Ron