Food vs. Fuel

[alaskaguy]

Not to make an arguement for subsidies, but the producers' bankruptcies were related to unstable commoditity prices. They contracted to buy $5.00 corn when it was clear it was heading to $6.00, but were left uncompetitive when it came time to honor those contracts and the market price was only $4.00.

I'm not following your logic.

If the ethanol producer was willing to lock in a price of $5.00 corn, I would think that that would indicate that the producers had determined that $5.00 corn was economically viable. Otherwise why lock-in $5.00 corn? Either an increase or decrease in corn prices shouldn't have an economic impact on the ethanol producers once the corn price was locked at $5.00.

I also don't understand your analogy to S & Ls. In the case of the the S&L's they could not control the cost of their funding source. In the case of the ethanol industry from what you have said they had the ability to control the cost of a major component (corn) to the production process by locking the cost at $5.00.

 

[Frak]

I think that the thing people don't realize is that these ethanol plants are just the start of things. It's about building infrastructure. Yeah, there will probably be dry-grind corn-based ethanol for a long time, but the infrastructure is in place for new technologies when they are perfected. Things like gasification of stover, fast pyrolysis, use of other feedstocks like sorghum or switchgrass. Take a look at what ISU is doing with the new BioCentury Farm west of Ames.

 

[jbhtexas]

I'm not following your logic.

If the ethanol producer was willing to lock in a price of $5.00 corn, I would think that that would indicate that the producers had determined that $5.00 corn was economically viable. Otherwise why lock-in $5.00 corn? Either an increase or decrease in corn prices shouldn't have an economic impact on the ethanol producers once the corn price was locked at $5.00.

It goes something like this...as mentioned previously, the price of corn (as was the price for most other commodities) was tied to the price of oil. The ethanol producers locked in $5 corn to make an end product that would sell at $4/gal (or whatever gasoline peaked at). When the price of oil suddenly crashed, so did the price of gasoline. The ethanol producers were locked in at $5 corn, but could only get $2.25 (or whatever gasoline fell to) for their end product. $5 corn was viable if they were able to sell for $4/gal at the pumps, but not viable at a pump price of $2.25/gal.

 

[CyForPresident]

Corn ethanol is an even trade, but its also a first generation technology. Of course, its not gonna be perfect. And, only one third of the corn crop is for ethanol. There is plenty to go around IMO.

This is really a debate of whats happening in developing countries. Three words: Genetically Modified Organisms. We need as many as possible for a second green revolution.

In 50 years, if Iowa is still only growing Corn and Beans, we will have failed horribly. We need to begin the incorporation of forage grasses, Switchgrass and Miscanthus, for the production of biomass ethanol. Switchgrass as a 13:1 gallon increase in fuel. Miscanthus is basically sugarcane for the midwest and could be used as a model for what Brazil did.

Iowa also needs to start using cover crops. We can not afford to have our soil exposed for 6 months of the year. And based off just driving around in the spring, some guys would do well to learn what a waterway or buffer is.

Iowa also needs to see more small vegetable farms start up (under 5 acres). The fact that most of Iowa's vegetables are transported in from California is ridiculous. We have the ability to provide our own food for half the year.

I'm hopeful that in 50 years, Iowa agricultural will have changed dramatically...but I'm a realist, smart money says nothing changes.

 

[alaskaguy]

It goes something like this...as mentioned previously, the price of corn (as was the price for most other commodities) was tied to the price of oil. The ethanol producers locked in $5 corn to make an end product that would sell at $4/gal (or whatever gasoline peaked at). When the price of oil suddenly crashed, so did the price of gasoline. The ethanol producers were locked in at $5 corn, but could only get $2.25 (or whatever gasoline fell to) for their end product. $5 corn was viable if they were able to sell for $4/gal at the pumps, but not viable at a pump price of $2.25/gal.

Thank you for the explanation.

 

[Incyte]

It goes something like this...as mentioned previously, the price of corn (as was the price for most other commodities) was tied to the price of oil. The ethanol producers locked in $5 corn to make an end product that would sell at $4/gal (or whatever gasoline peaked at). When the price of oil suddenly crashed, so did the price of gasoline. The ethanol producers were locked in at $5 corn, but could only get $2.25 (or whatever gasoline fell to) for their end product. $5 corn was viable if they were able to sell for $4/gal at the pumps, but not viable at a pump price of $2.25/gal.

It's interesting to note that an oil company (Valero I believe) bought up the production plants in bankruptcy.

 

[cstrunk]

Corn ethanol is an even trade, but its also a first generation technology. Of course, its not gonna be perfect. And, only one third of the corn crop is for ethanol. There is plenty to go around IMO.

This is really a debate of whats happening in developing countries. Three words: Genetically Modified Organisms. We need as many as possible for a second green revolution.

In 50 years, if Iowa is still only growing Corn and Beans, we will have failed horribly. We need to begin the incorporation of forage grasses, Switchgrass and Miscanthus, for the production of biomass ethanol. Switchgrass as a 13:1 gallon increase in fuel. Miscanthus is basically sugarcane for the midwest and could be used as a model for what Brazil did.

Iowa also needs to start using cover crops. We can not afford to have our soil exposed for 6 months of the year. And based off just driving around in the spring, some guys would do well to learn what a waterway or buffer is.

Iowa also needs to see more small vegetable farms start up (under 5 acres). The fact that most of Iowa's vegetables are transported in from California is ridiculous. We have the ability to provide our own food for half the year.

I'm hopeful that in 50 years, Iowa agricultural will have changed dramatically...but I'm a realist, smart money says nothing changes.

+100

Corn ethanol is just the start. It's all about making strides towards the next best thing.

You have touched on so many excellent points in your post. Iowa (and the world) agriculture needs to change, and ISU and other institutions are working on viable alternatives that have the potential to "rock your world."

The problem right now is a lack of infrastructure and imperfect technologies. Once we can get a handle on both of those we will be in much better shape.

Efficiency is the key to the future.

 

[CyForPresident]

+100

Corn ethanol is just the start. It's all about making strides towards the next best thing.

You have touched on so many excellent points in your post. Iowa (and the world) agriculture needs to change, and ISU and other institutions are working on viable alternatives that have the potential to "rock your world."

The problem right now is a lack of infrastructure and imperfect technologies. Once we can get a handle on both of those we will be in much better shape.

Efficiency is the key to the future.

Yeap, couldn't agree more. A good example of the infrastructure problems is the inability of ethanol to be pumped through pipelines. Fix that problem and ethanol is much more prominent.

 

[usedcarguy]

I'm not following your logic.

If the ethanol producer was willing to lock in a price of $5.00 corn, I would think that that would indicate that the producers had determined that $5.00 corn was economically viable. Otherwise why lock-in $5.00 corn? Either an increase or decrease in corn prices shouldn't have an economic impact on the ethanol producers once the corn price was locked at $5.00.

I also don't understand your analogy to S & Ls. In the case of the the S&L's they could not control the cost of their funding source. In the case of the ethanol industry from what you have said they had the ability to control the cost of a major component (corn) to the production process by locking the cost at $5.00.

$5.00 corn was viable with the price of ethanol at the time. As the price of gas fell, so did ethanol as ethanol prices are for the most part tied to gas prices. Had they not contracted the corn, they would have been fine. But the risk for them of not contracting was that they may not have had enough grain to run the plant. For some reason they failed to lock in the sale price of the ethanol for the corn which they hedged.

My comparison the the s&l failings was that the s&l's were unable to deal with the abnormally large price swings of the underlying commodity. (cost of money vs. cost of corn) I suppose whether they didn't or couldn't hedge their production would have a significant effect on the analogy making sense.

 

[dmclone]

What kind of numbers are you looking at when comparing the ethanol blend to the regular blend? You could easily see a 5 or 10% variation on a tank to tank with the same blend just based on driving conditions and weather conditions, plus the variation in how full the tank gets each time you fill up. I'd think you'd at least have to do about 20 tanks straight on ethanol and 20 straight without ethanol to get a legitimate comparison.

From my page 3 post:


I did a little test last year when I had a Honda Accord(4cyl). I tried standard ethanol for 6,000 miles and I tried premium for 6,000 miles. This car was used 90% of the time to drive back and forth to work with very little traffic. Similar weather conditions (1/2 winter, 1/2 summer).

Premium Fuel 27.8mpg
Ethanol Fuel 23.6mpg

Premium Fuel 215 gallons used
Ethanol 254 gallons used

I didn't factor in the price but let's assume they were at today's rates.

Premium Fuel 215*2.54=$546.10
Ethanol 254*2.24=$568.96

 

[jbhtexas]

$5.00 corn was viable with the price of ethanol at the time.

Not to mention that certain people, like Mr. Rich OkSU Benefactor, were proclaiming that oil was headed up to $150-$200/barrel. Many companies locked in commodities, figuring that their prices would continue to rise as oil prices did. Then, the bottom dropped out of oil. In many industries, with real competition, it is not possible to lock in your end product selling price. You get what the market bears at the time of sale.