Blogging Ethanol & Biodiesel

More U.S. Companies Dissolve Ethanol Plants

Weeks after a Citigroup analyst speculated that three out of four U.S. ethanol plants were in danger of closing, a Tennessee company canceled plans to build seven plants in Illinois, and a British-owned ethanol producer filed to reorganize under the bankruptcy code.

         Knoxville-based Heartland Ethanol spokesman Mike Craig said last week's decision to dissolve the company was based on the high price of corn. Also, the company was having a tough time borrowing money to build new, 55 million gallon per year plants in Illinois with local investors.

         Meanwhile, U.S. subsidiaries of U.K.-based Renova voluntarily filed for Chapter 11 bankruptcy protection last week, after agreeing to terms with lenders for $4 million in new working capital. The Heartland and Renova developments follow other producers delaying new plant openings, most citing the higher cost of corn.

         Earlier this month, VeraSun Energy, the second-largest U.S. producer, canceled plans for two Midwest ethanol plants totaling 220 million gallons per year, citing market conditions. Pacific Ethanol postponed construction of a 50 million gallon a year plant near Calipatria, Calif., following similar delays by Biofuel Energy, Agassiz Energy, Watonwan Energy and Little Sioux Corn Processors.

"Nobody" understands diversion of food to fuel cars

Tensions on government biofuel policies came to a breaking point Tuesday at the opening of the United Nations food summit in Rome as the head of the UN's Food and Agriculture Organization (FAO) asserted that "nobody" understood the diversion of food to fuel cars.

          Environmentalists and academics have cited biofuels for its part in the 60% increase in food costs since the beginning of 2007 and ensuing food shortage riots in more than 30 countries. Diversion of land from food crops to biofuels has added to about a third of the rise, Washington D.C.-based International Food Policy Research has said.

"Nobody understands how $11 to $12 billion a year on subsidies and protective tariff policies had the effect on diverting 100 million tons of cereals from human consumption, mostly to satisfy a thirst to fuel for vehicles," said Jacques Diouf, FAO director-general.

The position of the United Nations is that biofuels such as ethanol and biodiesel can help decrease global warming and create jobs for the rural poor, but the benefits may be counteracted by serious environmental problems and higher food prices. However, Brazilian President Luiz Inacio Lula da Silva soundly rejected criticism that ethanol production in Latin America's biggest nation has cut food output, blaming higher oil prices and farm subsidies instead.

It seems to be the never ending debate: one side cites all the evidence for increasing food prices, while the other side continues to reject it.

Minnesota rolling in soybeans

Last week, Minnesota Gov. Tim Pawlenty signed into law a measure that increases the state's current 2% biodiesel mandate ten-fold in less than a decade. There could have been no increase in the mandate at all, but what, or who, caused the increase?

In December 2005, Minnesota officials had to temporarily roll back the requirement in response to complaints from truckers that the fuel was becoming viscous and clogging fuel filters.

The state currently requires diesel to contain 2% biodiesel, but the new rules under set a new mandate of 5% by May 1, 2009, 10% by 2012, and 20% by 2015. Those are some of the largest increases in the nation, putting Minnesota at the forefront of biodiesel mandating.

Minnesota farmers raise 280 million bushels of soybeans annually (about 10% of the total U.S. crop) on 7 million acres, a 165% yield increase per acre. Soybeans and soybean products now account for about one-third of Minnesota's total agricultural exports.

It takes Mother Nature 250 million years to renew her fossil fuels, but for Minnesota soybean producers it takes only nine months. Thus, Minnesota is in a better position than most to produce more biodiesel from soybeans.

Domestic fuel prices increase dramatically

A Department of Labor report will probably add fuel, so to speak, to the continuing discussion over the effect that biofuels growth has on food prices. The new data released April 16 showed that domestic food prices rose 5.1% in just the first three months of this year.

      Economists surveyed by Dow Jones Newswires were forecasting that the Labor Department's report would show the consumer price index increased at a rate of 4% annually through March 2008, compared to the 2.8% rise over all of 2007.

     The Labor Department's producer price index for finished goods, released April 15, showed a 1% increase on a seasonally adjusted basis – about twice what economists had expected. Food prices rose 1.2% in March, after falling 0.5% the previous month.

     Work by the Washington D.C.-based International Food Policy Research Institute suggests that biofuel production accounts for a quarter to a third of the recent increase in global commodity prices.

     With gasoline prices steadily rising, people are more anxious than ever to find an alternative. However, if it starts costing people at the grocery store, is there really a difference in the minds of consumers? Most people could find a way to cut back on driving, but eating might be another story.

Corn costs will head even higher this year

Margin squeeze ahead. U.S. farmers are expected to switch significantly more acres back from corn to soybeans to cut down on costs, the U.S. Department of Agriculture said this week.
            According to the latest Prospective Plantings Report, farmers intend to seed about 86 million acres of corn this year, down 8% from 2007, largely because the stuff takes so much fertilizer to produce.
           Some analysts are already nervous, including BB&T Capital Markets' Heather Jones, who said Monday that if indeed the USDA's call on corn acreage is right, either "demand must be rationed or there needs to be a big supply response from other growing regions of the world."
        Less informed observers are also weighing in.
        Biodiesel producer, take heart! In contrast, the USDA's forecast for U.S. soybean planting this year is way up at 74.8 million acres (versus 63.6 million acres that farmers planted in 2007.) That's because soybean prices have shot up in recent months, making the crop more profitable in relation to corn even though soybeans produce far less per acre.
        Soybean prices, according to ag economists, generally need to be at about 2.5 times higher than the price of corn to equalize the revenue between the commodities.

It's about time...

TIME takes a moment from declining to name a Person of the Year to open up a discussion about ethanol - about four months and one "Energy Independence and Security Act" passage too late.
        The cover article, by Michael Grunwald, brings biofuels back into the spotlight for the time being, but the timing (apologies) is somewhat baffling. The issue, which hit newstands today, is basically a re-hash of the false environmental promise of corn-based ethanol.
        But this argument is already so well-documented that most journalists, at this point, have moved on and are now trying to be cynical about next-generation feedstocks, like biomass. No doubt the presses of the venerable weekly were held up so the author could coalesce a compelling lead ("I watched him grab a small anaconda with his bare hands") and spend a day in the Amazon with the Kamayura tribe.
        The article also falls short in that its foot-wide exploration of the negative consequences of biofuel mandates does not at all consider the harm to consumers who must pay more for food, or even the taxpayers who are essentially subsidizing the rural redevelopment of the interior Midwest. 
        But the worst offense of the article is that it wants to lump all biofuels, existing and future, together. This, in turn, forces Grunwald to make an entirely unsupported jab at technology that is not hurting anybody, let alone the environment, because it is not yet being practiced on any meaningful scale.
        "Even cellulosic ethanol made from switchgrass ... looks less green than oil-derived gasoline," Grunwald writes.
        This is not only a glib statement, it is likely wrong. The USDA's Agricultural Research Service is presently developing switchgrass for use on marginal, highly erodible lands. A recent study, meanwhile, showed that switchgrass yielded 93% more biomass per acre than corn.

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.

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."

Andersons exec acknowledges "dark side" of ethanol

Image courtesy: Blame Society Productions
The Andersons, Inc. last week declared its fourth consecutive quarter of record earnings in a conference call that would have been unremarkable if not for statements made by Gary Smith, the Maumee, Ohio-based company's vice president of finance.
        Asked about the impact of high corn prices on the company's ethanol business, Smith made one of the first high-level acknowledgements of validity in the problem of using agriculture as fuel feedstock.
        "In the end, if you have economics driving it and you look at the impact of a dollar increase in corn and what that does to your variable cost for reducing a gallon of ethanol," Smith said, "then you look at it for what it does to your variable cost for producing a pound of beef or a pound of pork or chicken or eggs.
        "It's pretty easy to conclude that you'll keep putting corn to feed before you'll slow down or shut down ethanol plants…before you'll dramatically shut down feeding, and I think most of us would prefer to eat first," he continued in response to a question about the risk to margins from Wall Street Access analyst Charlie Rentschler.
        "So, I think kind of the dark side of ethanol is the combination of what you're talking about, Charlie," Smith said. "It's just that simple."
        Smith quickly added that, on the other hand, the company's grain division had shown an "amazing ability" to increase crop yields on existing land. "I think that's going to continue to occur," he continued. Also, "new" farmland could also come out of the USDA Farm Service Agency's Conservation Reserve Program.
        "There is a substantial amount of land out there that all of us are paying for that is not in production that I believe could be put in production," Smith said. "I think that's terribly unfortunate, especially given the situation like you're describing, Charlie. So I would hope at some point in time we'll see the productive amounts of those lands come back into production to help mitigate the risk that you laid out."
        Following Smith's remarks, Rentschler protested that new ethanol production would require a 15-16% increase in crop productivity "just to feed the incremental ethanol plants coming on-stream" this year.
        "Certainly, yields aren't going to jump up like that year-over-year. There's no way that's possible," the analyst said.
        "I get your point," Smith responded.

EU environmental groups rally against 10% biofuel target

         Citing water shortage and deforestation concerns, a consortium of 17 environmental non-governmental organizations are contesting the European Council's (the highest political body of the European Union) plan for a 10% binding minimum target for the share of biofuels in transport by 2020.
         In the groups' letter to EU Energy Commissioner Andris Piebalgs, the NGOs said the Council's target did not fully address the two issues, particularly because the proposal does not provide protection for savannas or permanent grasslands that may be threatened by expanding agriculture.
         Added to that is the NGOs' contention that the greenhouse gas calculator in the Council's draft proposal is not only "too simplistic," but also that it is "skewed towards making biofuels look better than they really are." In addition, "large scale biofuel production can cause indirect or knock-on impacts, such as increasing food and feed prices and increasing water scarcity, which would lead to negative impacts on the world's poor," the groups said.
         The NGOs are calling for a ban on the use of sugar cane, corn, and some varieties of canola and palm oils in biofuels production.
    Talk Back! Tell us if you think the critique is fair, or another cheap shot by naysayers at an easy target.