Milling & Baking News - July 14, 2009 - 21

bakingbusiness.com / world-grain.com

'86

'92

'96

'98

'00

9,000*

2,130

1,630
1,770

1,470

1,400

1,350
1,400
'94

1,100
1,300

'90

1,200

'88

1,100

830

845

'84

870
900
950

375
430

'82

610
710

350

'80

215

175

2,810

million of gallons

6,500

U.S. fuel ethanol production

New push to raise blending rate
Even as the greenhouse gas and landuse debates heat up, other issues persist
and the economy struggles, the corn and
ethanol industries and several states are
pushing for an increase beyond the current 10% blend rate of ethanol in gasoline, with some seeking a 15% blending
rate, which may effectively increase the
amount of ethanol used by 50%.
"We think the science is there to
move to E15," Mr. Hartwig said.
The June 30 U.S.D.A. Acreage report indicated 87 million acres
planted to corn this year, 4% more
than the industry expected and
1% more than a year ago. At the

4,900

Smooth road gets bumpy for ethanol
It looked as if ethanol was in for a
smooth ride after President George W.
Bush signed the Energy Policy Act of
2005, which called for an R.F.S. of 7.5
billion gallons by 2012, nearly double
the level then being used. And the Energy Independence and Security Act
of 2007 raised the level for corn-based
ethanol to 15 billion gallons by 2015.
Ethanol futures prices in Chicago,
which had traded between $1.15@1.25
a gallon from June 2004 to June 2005,
skyrocketed to more than $4 a gallon
in June 2006, when corn prices were
around $2.30 a bu and crude oil was
near $70 a barrel. Ethanol plants, almost all using corn as a feed stock,
could hardly be built fast enough,

production, according to the U.S.D.A.
A year ago the industry was assessing the alternative energy policies of
the two major presidential candidates,
Barack Obama and John McCain. Mr.
Obama appeared more favorably disposed to alternative energy. Corn and
crude oil prices had just come off record
highs. And there was barely a hint of
the severity of the economic downturn
that was to come in the second half of
2008, ultimately depressing demand
for transportation fuel in general.
The Obama administration has carried through as a strong supporter of
alternative fuels, including ethanol, but
a relatively new debate has surfaced
about greenhouse gas emissions and
indirect land-use (including land in
South America) provisions in the Notice
of Proposed Rulemaking for the R.F.S.
from the E.P.A., for which the comment
period was extended to Sept. 25.

3,900

profit margins were tremendous and
producers not only covered variable
costs but quickly paid down or eliminated debt.
But the picture began to cloud in late
2007 and early 2008 as corn and other
grain and oilseed prices marched toward record highs, with much of the
blame put on the ethanol industry because of its increased use of corn.
Corn used to make ethanol, which
had been about 11% of the 2003 and
2004 corn crops, began climbing to
about 15% of the 2005 crop, 20% of
2006 production, 23% of 2007 outturn and then jumped to 31% of the
2008 crop. In its June World Agricultural Supply and Demand Estimates,
the U.S.D.A. projected 4,100 million
bus of corn, or 34% of the 2009 crop,
would be used for ethanol in 2009-10
(September-August), up 9% from current year use of 3,750 million bus.
Although several other factors also
contributed to the rise in grain and
food prices, not the least of which
were record high energy prices, the
debate grew intense. Some states last
year requested their R.F.S. levels be reduced, but the Environmental Protection Agency denied those requests.
The rising percentage of corn use
and record high prices fueled a global
debate about food versus fuel, which,
while unsettled, appears to have
been pushed to the backburner amid
the current global recession, as have
concerns about water use to make
ethanol. The amount of corn used
for food during the period has held
near a constant 10% to 11% of annual

3,410

the R.F.A. April stocks were estimated
at 623.5 million gallons, or about 22
days' supply.
"Capacity utilization today is about
85% to 90%," said Matt Hartwig,
R.F.A. communications director, adding that conditions were "absolutely"
better than a few months ago.
Margins improved to "double-digit
per-gallon profits" in early July because of the large drop in corn prices,
according to calculations by Data
Transmission Network for a "hypothetical" 50-million-gallon plant. That
compared with net losses the previous
six months and with a 38c-a-gallon
loss a year ago when corn was near $7
a bu, D.T.N. said.
"I think we have seen a bit of a
return of ethanol margins, certainly
enough so plants can cover their variable costs," Joseph Glauber, chief
economist of the U.S. Department of
Agriculture, said in June. "Again, the
long run aspects of the industry, one
way or another, the way the R.F.S.
works is that gasoline blenders are going to have to utilize ethanol, and that
means in the long run, there is demand
for those products. So, I think we'll see
a return to health in the industry."
Ethanol prices have continued to follow corn prices, for the most part. But
with corn as the major input cost, recent
large declines in corn prices have benefited refiners. Corn and ethanol futures last
week were at four-month lows with ethanol still 7% above its 52-week low and
corn 16% above its 52-week low set in
early December 2008. Crude oil, while at
a six-week low last week was 75% above
its 52-week low set in December.

'02

'04

'06

'08

Source: Renewable Fuels Association, January 2009
Milling & Baking News July 14, 2009 / 21

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Milling & Baking News - July 14, 2009

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