Strap in, if you’re riding the e-wave

I can’t open the mail, or another farm publication, or my e-mail without reading the word “ethanol.”
We’re riding the e-wave right now, bobbing along on high corn prices and floating on renewable energy currents from Washington.
Everyone’s pro-ethanol, pro-biofuels, pro-renewable energy. That’s good. It’s about time.
The numbers. The Renewable Fuels Association says there are now 111 ethanol biorefineries up and running, another 75 under construction, and eight plants that are expanding. Total capacity, including the new and expanding plants, is 11.6 billion gallons a year, a huge jump from the 1.6 billion gallons produced in 2000. The wave is comin’ on strong, as the capacity estimate just six months ago was only 7.4 billion gallons.
In 2006, 5 billion gallons of ethanol were produced, accounting for 20 percent of the 2006 corn harvest, according to USDA’s chief economist Keith Collins.
What’s keeping it rolling? Collins points to high oil prices, a 51-cent per gallon tax credit provided to blenders, low corn prices (until this fall), an ethanol import duty of 54 cents/gallon, the Renewable Fuels Standard, and the elimination of MTBE (methyl tertiary butyl ether).
Technology also boosts production efficiency.
Can it continue? Collins predicts it will take 3.15 billion bushels of corn to satisfy the 2007 ethanol production. That’s 1 billion bushels more than the 2006 use. With an average yield of 152 bushels per acre, ethanol use alone will require an additional 6.5 million acres of corn this year.
Yes, we will increase yield through management, technology and crop genetics (each 5 bushel increase in yield is the equivalent of adding about 2.5 million acres to corn plantings, Collins says), but there’s a real likelihood that more marginal acres will come into production. Marginal acres that require higher management and are more susceptible to erosion, runoff and other environmental concerns. There’s a reason those acres aren’t in corn.
Be smart. Agriculture has to be smart about this ethanol market. Consumer goodwill and environmental progress shouldn’t be traded for short-term gains.
I am convinced that alternate uses for corn and soybeans, including ethanol and biodiesel, are the future. But Ohio and Pennsylvania have not been at the forefront of ethanol production and we may have already missed the big profit boat.
There’s an ebb and flow to the market frenzy and public opinion trends. Already, corn and beans are being called “first generation biofuels,” inferring that their use is limited. And Collins points out that each $1 increase in the per bushel price of corn adds about 36 cents per gallon to the production cost of ethanol, which is now in the range of $1.45 per gallon.
There’s nothing wrong with riding the wave. It’s a lot of fun.
Just be sure to wear your life jacket.
(Farm and Dairy Editor Susan Crowell can be reached at 800-837-3419 or at editor@farmanddairy.com.)