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Oil prices are a boost for ethanol
2011-03-12 11:50:27
Crude oil rose a dollar Monday to a 33-month high of $105.44, but there's a silver lining for Iowa: The rising crude price should continue to provide a tailwind for the state's ethanol industry.
Todd Becker, chief executive of Green Plains Energy of Omaha, reported he was bullish on the industry. "We've seen our margins widen nicely in the last few days," said Becker, whose company runs plants at Shenandoah, Superior and Lakota.
That is good news for an industry many thought would be toast after corn prices doubled in the last half of 2010.
Since December the rise in the price of crude oil has driven the wholesale price of regular gasoline to $3 per gallon. That made room for the price of ethanol to climb from $2 per gallon in December to $2.59 per gallon Monday.
The lower price of ethanol gives oil companies extra incentive - beyond the federal renewable fuels mandates - to purchase ethanol to blend with unleaded gasoline.
Those economics have kept the demand for ethanol strong, and Iowa's 41 plants are producing at full steam. Of the 13.2 billion gallons of ethanol produced in the United States last year, 3.5 billion gallons came from Iowa, the nation's largest producer.
In 2009, with corn prices at $4 or lower, ethanol producers enjoyed a rebound from the disastrous 2008 when record corn prices took Iowa's largest ethanol producer, VeraSun Energy, into bankruptcy.
Last year was tougher. During January and February, a falloff in gasoline consumption hurt ethanol demand. Not until oil prices began rising again in early fall did ethanol margins improve, only to take the punch of soaring corn prices that began in mid-summer.
What worries producers is what may be a shaky supply of their feedstock corn, in tightest supply in the United States since the mid-1990s.
Becker noted that if U.S. farmers don't produce a bumper corn crop this growing season, the ethanol industry could find itself in a serious supply crisis by fall.
"Most plants will get through the second quarter of this year all right, but a lot of plants are very nervous about the third quarter," said Becker. "We could see some plants shut down."
If a corn supply problem develops later this year, it could coincide weirdly with a slump in demand.
"We're pretty much at the blend wall," said Monte Shaw, executive director of the Iowa Renewable Fuels Association, referring to the 13 billion gallons of ethanol production nationally, up 28 percent from 2009.
Although the U.S. Environmental Protection Agency has raised the blend limit for ethanol to 15 percent in gasoline, the lack of enough retail pumps is thought to delay much use of E15 for up to two years.
"We'll see a little E15 sold by the end of this year, but not enough to make a big difference," Shaw said.
A safety valve for ethanol could be the old standby for agriculture: exports. Foreign sales of ethanol quadrupled last year, to almost 400 million gallons and Becker said last week that figure could double again in 2011.
But if that happens, the ethanol industry knows it will be in for particularly vicious blowback from opponents who rally around the "food vs. fuel" argument.
"It's in vogue now to bash ethanol," Shaw said. "The political hill we have to climb this year has never been higher."
Shaw spoke a few days after a coalition of 90 organizations, ranging from Friends of the Earth to the U.S. Snack Food Association, called on Congress to eliminate the 45-cent tax deduction for ethanol that expires at year's end.
"We're getting pretty tired of getting beaten up over ethanol," said Dean Taylor, who farms near Prairie City and is president of the Iowa Corn Growers Association.