Blogging Ethanol & Biodiesel

Surcharges On A Train

Is the fix in? After paying out more than $250 million in fuel surcharges to the 'Big 5' railroads over the past four years, Archer Daniels Midland now claims that those railroads conspired to fix those surcharges at an artificially high level.
        The Decatur, Ill.-based "Supermarket to the World", which ships millions of tons of biofuel feedstocks such as corn and soybeans every year, is seeking $750 million in damages in a lawsuit filed in Minneapolis this week.
        The suit accuses the five railroads of setting fuel surcharges through the Association of American Railroads (AAR), which as part of its role in being the railroads' main trade group, publishes the indices used by railroads to calculate rates.
        The lawsuit points out that AAR's Board includes the CEOs from the five railroads, which sure enough, might seed cynicism.   
        Then again, the former English majors who like to point out when things are ironic will note that in 1996, ADM itself agreed to plead guilty and pay a $100 million criminal fine to the Department of Justice for fixing prices in the worldwide markets for lysine and citric acid. At the time, it was the largest criminal anti-trust fine ever imposed.

Straight talk on ethanol comes into political fashion

Without getting into the specifics as to which presidential candidate we'd rather answer that red phone, we heard this week possibly one of the least pandering positions on ethanol a non-Michigan office-seeker has ever given.
        Speaking at a campaign stop in Terre Haute, Ind., Sen. Barack Obama, himself from one of the biggest corn states, said ethanol is a "transitional" technology that shouldn't be expected to cure the nation's addiction to oil.
        "Corn-based ethanol is not optimal. I've been a big supporter of corn-based ethanol... It's a good transitional technology, but the truth is, it is not as efficient as what the Brazilians are doing with sugar cane," Obama said.
        No word yet as to whether the Senator would support any change to the $3 billion of ethanol subsidies the U.S. doled out last year, but he's got competition as far back as 2000, when youthful upstart Sen. John McCain called ethanol "not worth it because it does not help the consumer."
        Debating the GOP field in Des Moines, of all places, McCain said "Ethanol subsidies should be phased out, and everybody here on this stage, if it wasn't for the fact that Iowa is the first caucus state, would share my view that we don't need ethanol subsidies. It doesn't help anybody."
        If you're curious, McCain drew 5% of the vote in the 2000 Iowa Caucus, or, behind W., Steve Forbes, Alan Keyes, and this guy.

The Corn Ultimatum

Concerns that environmentally sensitive lands will return to crop production owing to corn ethanol's voracious demand requirements were not allayed when a USDA Agricultural Research Service economist confirmed that even Conservation Reserve Program (CRP) lands are not sacred.
        “There is discussion about taking land out of CRP land and putting a portion into corn, said Harold Collins, speaking earlier this week at the National Alliance of Independent Crop Consultants annual meeting in Seattle.
        That is not to say that all 37 million of the CRP acres could be feedstock, as the USDA considers only about 7 million acres suitable for corn production.
         “If we are to make ethanol from corn grain, we would need 68 million acres, which is 72% of the corn grown in the United States. I doubt very seriously that’s going to happen,” Collins said.
         An additional 15 billion gallons of ethanol fuel would most likely come from the Great Cellulosic Covenant.
        Even if tomorrow's vaunted technology were now upon us, switchgrass “is not for the grower who is faint of heart because it takes so long to get started,” Collins said.
         Interestingly, Collins spoke of wide variation in expected yields from switchgrass, based on factors such as irrigation. Ironically, those states rich in corn would ironically come in last. Iowa got 6 tons of switchgrass per acre in the recent USDA study versus Washington's 13 tons.

A Smaller Kind of Harvest

Ethanol producing margins come in part from the sale of byproducts. And the value of those byproducts – from the wet milling and dry milling processes– has been falling in the U.S. (Source: Ethanol & Biodiesel News).
        Wet milling begins first by soaking the grain to separate it into components, namely fiber, gluten and starch. The first two make it into livestock and poultry feeds, and the starch eventually becomes ethanol.
        In dry milling, the entire grain kernel is ground into flour. At the end of the process, there’s a coarse grain and syrup that’s left over, and dried to produce dried distillers grains with solubles, a livestock feed. CO₂ released during fermentation is sold.
        Further exacerbating producer problems is that gasoline inventories are rising while gasoline prices are as well. So at the margin, some ethanol will be left out of the fuel mix. This is not to suggest that gasoline demand has become elastic all of a sudden, but simply that ethanol capacity was built at too rapid a clip to be absorbed.
        Contact our David Givens if you want the latest update of this graph as the driving season approaches. 

Pacific Ethanol delays earnings

Shares of Sacramento-based Pacific Ethanol, Inc., were down 4% Tuesday following a late Monday announcement by the company that it will delay in the filing of its Annual Report on Form 10-K for the year ended Dec. 31, 2007.
        Pacific Ethanol, the largest ethanol producer on the West Coast, had been expected to release earnings this week but, without giving a reason, said late yesterday that it was holding the results back until Monday, March 31st.
        The unusually protracted two-week delay, together with weaker earnings this season from Pacific Ethanol's peer group, suggests some imminently disappointing news.
        The delay from Pacific Ethanol comes on a backdrop of stronger ethanol prices in recent months relative to gasoline, but Wall Street analysts predict that corn costs will erode any significant profitability for ethanol producers throughout 2008 and into 2009. Meanwhile, co-product sales are not seen as being able to contribute enough in the near term to overcome the high feedstock costs.
        The announcement from Pacific Ethanol also follows downgrades in the ethanol sector in recent weeks, as well as a stock market dive that began with Aventine Renewable Energy's Feb. 22 disclosure that auction-rate securities held may pinch the company's liquidity.
        Pacific Ethanol recently received a $24 million grant award from the Department of Energy for the company's cellulosic ethanol project in Oregon. Meanwhile, the company was forced to suspend construction on the 50 million gallon corn ethanol plant it was building in Imperial County near Calipatria, Calif. Plants in Stockton, Calif. and Burley, Idaho remain under construction.
        Shares closed at $4.60/share on Tuesday.

Science Mag author hits back at pro-ethanol critics

Timothy Searchinger, the lead author of one of the Science pieces that found "there was little little doubt that ethanol is making global warming worse”, struck back at the RFA's coalition of ethanol backers, issuing an 11-page rebuttal against the bad science claims, including that the comparison between the oil and ethanol industries had been unfair.
        "The amount of land used to produce a gallon of gasoline is extremely small ... it is less than 1% off the amount of land used to produce a gallon-equivalent of ethanol," wrote Searchinger, a visiting scholar at Princeton's Public and International Affairs School. "And many oil-drilling lands, such as desert, support little carbon."
        Responding to criticism from the New Fuels Alliance (NEFA) and Argonne National Laboratory's Michael Wang that his study should have included the indirect impacts of oil, Searchinger responded: "Much of the world’s oil is either produced in deserts or offshore or on land that still remains in productive agricultural use. Because the effect of oil production on emissions from land use change is small, it is reasonable to omit it."
        Searchinger also took critics to task for claiming that the indirect land use study used an irrelevant ethanol usage figure.
        "This criticism could be valid if the study focused on the total increase in emissions from expected increases in corn-based ethanol," wrote Searchinger, "But the study focuses on the rate of emissions for ethanol, in other words, the level of greenhouse gas emissions per gallon (unit of energy) of ethanol.
        Searchinger added: "NEFA’s criticism could also be valid if the agricultural model used by the study calculated that more land use change would occur per gallon of ethanol at higher levels of ethanol than at lower levels ... But the agricultural analysis used for our study does no such thing. The results vary somewhat at different levels of ethanol but tell a comparable story."