'Green fuel' drive a boost for farmers Suddenly, push on for corn production
Peter Morton Financial Post
Monday, June 12, 2006
From farmers to governors, suddenly the United States is getting excited about corn.
Once seen as just another crop grown to feed cattle, make tortilla chips and show up at summer picnics, corn is becoming the new "green fuel," and America is scrambling to produce more of it.
Ethanol or ethyl alcohol comes from sugar-rich crops such as corn or sugarcane and can be blended with gasoline to reduce oil consumption.
It also serves as a oxygenate additive to replace methyl t-butyl ether (MTBE), the gasoline additive many experts consider an environmental hazard.
The National Corn Growers Association held a special conference in Dallas, Tex., this week to discuss ways of boosting production of ethanol to meet runaway demand for the new fuel from gas stations across the country.
"We're just scratching the surface of how much corn we could raise in this country if it was profitable," said Elmer Martin, who farms 400 acres of corn in central Missouri.
Corn farmers have been struggling to see competitive prices like those of soybeans. For years they have been forced to rely on US$3.6-billion a year in government subsidies to offset slumping prices.
But all that is changing rapidly since U.S. President George W. Bush ordered a massive ramp-up in ethanol use to offset up to three-quarters of the imports of oil from the Middle East by 2025.
The move has pushed up prices of corn -- something not seen since 1995, when a drought sent prices to US$5 per bushel.
"This doesn't happen often," said Ken McCauley, a farmer and incoming president of the Corn Growers Association.
With the push for corn fuel, the market for corn is so tight this year that Governor Jeb Bush of Florida is calling for an end to the 54% import duty on foreign ethanol that was designed to protect U.S. corn growers.
"We don't put a tariff on crude imported from a country like Venezuela, yet we put a tariff on ethanol, which is a renewable source of energy that provides a clean alternative," Mr. Bush said recently.
"We're at a point now where we need to develop strategies to begin that process," he said.
Although the ethanol component in gasoline is around 10%, some refiners such as Cincinnati, Ohio-based Kroger are making station improvements needed to offer "E85" fuel in Dallas and Houston this summer.
E85 ethanol is a blend of 85% ethanol and 15% gasoline but demands a special car engine to burn the rich ethanol blend. General Motors Corp. is planning to produce at least one model to use the super-rich fuel.
There is some skepticism of the ethanol boom.
Alan Greenspan, the former Federal Reserve chairman, told Congress this week that while ethanol will be helpful in reducing oil dependence, ultimately its use is limited.
"Its ability to displace gasoline is modest at best," he told the Senate Foreign Relations Committee.
Dan Reicher, an assistant energy secretary under former president Bill Clinton, says he is bullish on ethanol but realistic. "Patent 5,000,000 was issued in the early 1990s for a cellulosic ethanol breakthrough," he says. "But we're not there yet."
If targets are met, by 2015 the United States should be burning 15 billion gallons of ethanol a year, compared to 66 million gallons currently.
Rona Ambrose, the Canadian Environment Minister, said last month the federal government is sticking to its election pledge to substitute at least 5% of gasoline with renewable fuels by 2010.
Hank Williams, an energy consultant with Jim Jordan & Associates LLP of Houston, said a boom in new ethanol plants means that half the corn crop could go toward supplying fuel companies within five to six years.
There are 101 ethanol plants in the United States and 32 under construction, according to the U.S. Renewable Fuels Association. Ottawa-based Iogen Corp. plans to build a US$300-million ethanol refinery in eastern Idaho because of a strong supply of straw. Iogen specializes in a fibre-based ethanol.
Mr. Williams cautions that if Wall Street catches ethanol fever, investors may end up building more ethanol plants than the country can handle.
Not a problem, says Rick Tolman, chief executive of the Corn Growers Association.
"This whole scenario is going to make more production and more [corn] acreage out there," he said, adding farmers could simply switch to corn from other crops.
It is all dependent on prices. Over the winter, corn futures prices were just above US$2 per bushel at a time when farmers were deciding what to plant. Since then, it has moved to about US$2.55 on the Chicago Board of Trade.
The surging demand for corn could result in a shortfall of U.S. corn this summer. Mr. Tolman said the crop is expected to come in at 10.7 billion bushels while demand is forecast at about 11.5 billion bushels.
The rush into ethanol has led to a boom in new technologies designed to improved ethanol yields from corn.
"One bushel of corn now yields 2.8 gallons of ethanol. That's up from 2.5 gallons several years ago and that's due to improved hybrids and more efficient ethanol plants," said Geoff Cooper, director of commercialization and business development at the corn grower's Dallas meeting.
He said new technologies can see special hybrids of corn hit as much as 3.36 gallons of ethanol per bushel.
He added: "Ethanol is all that anyone can talk about these days."
