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Brace for rough ride on ethanol

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Wednesday, Nov 19, 2008 - 12:47:47 am CST

The dimensions of the ethanol industry’s economic woes are only beginning to become clear.

It’s not a pretty picture.

Nebraskans — especially farmers and communities tied to the success of a local plant — are facing months and possibly years of uncertainty.

Omaha investment banker Mark Lakers of Ag and Food Associates LLC predicted this week that the number of bankrupt ethanol plants — currently at 16, will jump to 40 by early next year.

Nebraska, which has 24 ethanol plants, ranks second in ethanol production.

“The plants developed in the last three to five years are most at risk,” Lakers said at a lending conference in Des Moines.

Latest in a series of negative developments was the announcement that Aventine Renewable Energy is suspending construction on an ethanol plant near Aurora.

Last month, VeraSun, the nation’s second-largest ethanol producer, filed for bankruptcy. The company operates plants at Ord and Albion. Advanced BioEnergy, which operates a plant at Fairmont, defaulted last month on a $10 million loan.

The industry has been buffeted by volatile, powerful forces, driving home the point of how closely the state is tied to the global economy.

One large factor was the spike this summer in corn prices. VeraSun locked into futures contracts on corn prices in July, near record highs. When prices fell, VeraSun lost an estimated $200 million. BioFuel Energy lost about $46 million in the same fashion.

Another big factor was the plunge in the price of ethanol, which is linked to the price of oil. In July, ethanol was selling for nearly $3 a gallon. Now it is selling for almost $1.50 a gallon.

The net result is that ethanol producers have been losing money for the past six months, Lakers said at the American Bankers Association.

Also putting the squeeze on the ethanol industry was the worldwide credit crunch. One reason Aventine shut down construction at its Aurora plant was to preserve its cash.

Fortunately for the communities who have a stake in the eventual rebound of the ethanol industry, political support for ethanol remains strong.

The government, which has provided $20 billion in subsidies to the industry over the past decade, has mandated that the nation use 15 billion gallons of renewable fuel annually by 2015, more than currently produced.

Best of all, President-elect Barack Obama is a long-time supporter of ethanol. Obama even supported boosting the renewable fuel mandate to 60 billion gallons by 2022.

As long as political support continues, there’s good reason to predict that the ethanol industry will eventually recover from its current travails. But over the next few months and years, consolidation and shakeout in the industry could be brutal.


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whatever wrote on November 19, 2008 5:27 am:
" Really, a bright spot is Obama? True. Yet the JS with enthusiasm supported the ONE presidential candidate in John McCain that would have destroyed the industry. Another example of the JS encouraging Nebraskans to vote for candidates that aren't in their best interests. "

 comforting wrote on November 19, 2008 6:14 am:
" Nice to now that as long as the taxpayers subsidize this mandated product(with its lower gas mileage & damage to engines) it is a viable product. Good for farmers and a few small towns so taxpayers please pay and love ethanol. Forget about its damage to the environment, its use of so much water, the tons of fossil fuel used to produce it, and all the marginal land being torn up to plant more corn. Another good welfare program for farmers, so Nebraskans you must support this product. "

 This week wrote on November 19, 2008 8:34 am:
" This week ethanol and regular gas were both $1.92 in Columbus. Now who would buy ethanol, and get 10 % worse mileage? All of the tax subsidies built these plants. Get government out of the picture and let the industry live or die on its own. "

 From wrote on November 19, 2008 8:40 am:
" the beginning this was a band aid fix to a long on going problem with imported oil. Of course, the farmers and nebraska in general don't like the closing of the plants. Face it, these corporations came into nebraska with big talk of fortunes to be had and the nebraskans bought into it. Some places they call this a "CON". Ethanol isn't the future of independence from oil, it's simply a subsidized short time fix who has made billionaires out of the con men who sold the idea to the farmers and nebraskans. Hey , I have a pump for a car that will get you 150 MPG any takers? "

 Nelly wrote on November 19, 2008 9:13 am:
" Really? Ethanol isn't a great thing like everyone said? No way! It is a scam, folks. "

 ted wrote on November 19, 2008 9:15 am:
" Comforting, so you think that subsidizing banks and Automakers is okay, but farmers do not deserve any govt support? If we do not support American agriculture where will we get our food, from Mexico? "

 Powered By Capitalism wrote on November 19, 2008 10:04 am:
" The ethanol industry needs to (and will eventually) fail. It’s just bad policy. Anything that needs to be subsidized and mandated is bound to fail. If ethanol is such a viable industry, why is it not thriving by now and why does it still need subsidies and mandates to keep it alive? I’m tired of my tax dollars being spent on these ridiculous government policies – wake up people! "

 reted wrote on November 19, 2008 10:42 am:
" Ted. You guys have been getting bailouts, price supports, subsidized crop insurance, tax breaks, & direct payments for decades. And, no, two wrongs don't make a right. "

 Ted in Omaha wrote on November 19, 2008 1:15 pm:
" Like 'This Week' said, since ethanol mileage is 10% worse (I have tested and I agree), the price should be 10% less than regular. At a standard 10 cents less than regular, this will only happen if gas goes down to $1.00. Any higher price is a waste of your fuel dollars.

Ethanol cannot be transported via pipelines because of its corrosive properties. And this is good for cars because...? "

 Kevin wrote on November 19, 2008 1:32 pm:
" So what is the solution? All (okay not all) of you say that ethanol won't and can't work, it works in Brazil. The combustion by products require different metal finishing requirements, but they are available and they are known. Is the solution to just allow the ethanol plants to close down stop all payments to farmers, give the auto manufacturers piles of money to run their companies in the same failed manner? Some pain now or greater pain later, that is the choice. Selfishness, or selflessness which to you want. From what I read on here, from time to time, your children are better equipped to handle the pain. Everybody has a gripe but no solutions are ever presented (generalizing again). I sure don't have all the answers but seriously for a society to move forward ideas must be presented, debated, and either moved forward or rejected. The beauty of the free market is the market does that for you. The burden of the free market is short sightedness can blur the equation. Those items must be carried by the goverment, education (woefully under funded), common defense, and to a certain extent ensuring a manufacturing base, and ensuring the ability to grow a large amount of food. There are after all certain industries that a prosperous society must have. The big three needs to be restructured and I think a bankruptcy court is the best place (best we have anyway) for that to happen, all a check (bailout) will do is put off the problem. If the Japanese can do it in Alabama then the big three can do it in Detroit, once their structure is fixed and all the management is fired and the design teams are restructured.
Sorry for the off subject rant. Blast away. "

 Chris P. wrote on November 19, 2008 3:33 pm:
" We need industry and jobs that are self sustaining. Nebraska needs to be more than just a bunch of farmers with their hand out. "

 to Kevin wrote on November 19, 2008 3:50 pm:
" Brazil is using sugar cane, which means converting sugar directly to energy. The U.S. is using starch-based items such as corn, which means converting first to sugars and then to energy. Extra steps mean extra cost, extra inputs, less efficiency for the production plant.They can also grow the sugar cane much cheaper per gallon of ethanol produced, especially when you consider the fuel and cost to irrigate the crop (not needed in Brazil). And if you want to start considering the cost to the US taxpayer for federally subsidized crop insurance, base payments on ag ground, and all other ag subsidies look out! "

 Consider this... wrote on November 19, 2008 4:40 pm:
" Ethanol is becoming cheaper to produce, and will continue to become cheaper to produce as new technologies are developed and implemented. Gasoline is becoming more expensive to produce and will continue to become more expensive as it becomes more difficult to extract remaining oil supplies. Eventually the curves will cross.

For another perspective I suggest the following Forbes article. Not only does it show one of the "conmen" at work, it does show that some plants are doing okay in this environment. Any industry that has gone through a massive growth spurt will thin the herd when the market starts to constrict. Companies that have done a poor job of managing risk are going to fail. It has little to do with the viability of ethanol itself. If you were to follow that logic then one would believe there is no future in cars or banking.

http://www.forbes.com/forbes/2008/1124/052.html "

 amazing wrote on November 21, 2008 12:21 pm:
" People losing jobs, economy in the tank, and people over taxed. Yet, the welfare kings still have their hands out wanting bigger government programs and wanting more of someone else's money. Shame on you all. "

 RE Ted from Omaha wrote on November 21, 2008 7:46 pm:
" You are absolutely and 100% confused about the corrosive properties of alcohol. Your comment is completely false. Alcohol cannot be transported in pipelines because it is a fabulous cleaning agent and loosens the crud left in the pipeline from other fuels. Regardless, ethanol is only a bargain when priced below regular gasoline. I own farms but choose to use regular gasoline in my own vehicles for efficiency. The guy that farms the farms believes in ethanol as do many others and more power to them. "

 Douglas wrote on November 21, 2008 7:56 pm:
" I read the comments posted and hear all the criticism of government subsidies and yet this is our government. Our representative have chosen to subsidize all sectors of the economy and we each support our little nest like it is sacred. I challenge any one to come on board and name me a part of our economy that is not subsidized. I am a sales rep and my industry keeps a close reign on its competition by utilizing Washington to create legislative mandates to keep my industry fat. "

 Not an expert like all of you wrote on December 3, 2008 1:14 am:
" To Kevin is obviously an expert on ethanol.
I wish this guy could explain to us the extra steps involved in converting the starch into sugar.
I know I don't have the vast knowledge that he has of the processes but here is how I see it.
Corn is delivered to the plants by trucks that can haul around 56,000 lbs of corn.
Sugarcane is also delivered by trucks, but due to the bulk of the cane only about 10,000 lbs can be hauled by 1 truck thats about 5.5 loads of cane per 1 load of corn. Can we figure that into the fossil fuel useage of corn vs cane. Those trucks don't run on ethanol.
Corn is sent through hammermills crushing it into a flour which exposes the starch.
Cane is wetmilled which means it is soaked in water to make a slurry sugarwater.
Both cane and corn stach have to be heated and have enzymes added to make the starch or sugar available for use by the yeast during fermentation. Most commonly used enzyme is alpha amylase which converts complex sugars or staches into dextrins.
During fermentation more enzymes are added which break the longer chain dextrins down into dextrose which can be converted into ethanol heat and co2.
After fermentaion the distilation processes are the same.
The difference between Brazils sucess with ethanol and ours is the fact that Brazil has a true free market trade system. Small producers sell their ethanol directly to the stations that are pumping it. While ethanol produced here is sold to a marketing company. the marketing company sells it to an oil company who blends it with gasoline. The oil company sells it to a storage facility. The storage facility sells it to a gas station. Then the gas station sells it to you. Everytime the product changes hands someone makes money which costs the end consumer. "

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