FarmPolicy

February 27, 2020

Focus on Renewable Energy

I. Ethanol
II. Farm Bill

I. Ethanol

Jonathan Fahey, writing in the February 12 edition of Forbes magazine, reported that, “This is what moonshine does to people. Ethanol was making investors giddy last year when oil prices were high, corn prices were low and ethanol producers like Archer Daniels Midland and small farmer cooperatives were reaping huge profits distilling corn mash into fuel.

“It created a corn rush. Money from Wall Street to Australia started pouring into ethanol distillery construction all over the U.S. heartland. Seventy-five distilleries are under construction, on top of the 111 now operating. ‘Everybody thought they could become the new Saudi oil barons of Champaign, Illinois,’ says Daniel Basse, president of AgResource, a Chicago agricultural research and forecasting outfit.

“Instead ethanol makers may be headed for the soup kitchen. Amid the frenzy, corn prices spiked, ethanol prices collapsed and yet more ethanol supply is coming online. Basse predicts the ethanol makers that were coining money last year are on track to start losing money by the end of this year.”

Forbes Magazine recently noted that the spread between the price of corn and the price of ethanol has been in sharp decline. According to this Forbes graphic, “The fat margin between the cost of corn and the price of ethanol has thinned out. Bad for the industry.”

However, Mr. Fahey hastened to add that, “Unless, of course, the industry gets yet another boost from the federal government, a distinct possibility. Ethanol has achieved hallowed status in the battle to reduce the U.S.’ dependence on imported oil (not to mention the battle for votes in Iowa). The federal government already supports ethanol with a tax subsidy equivalent to 51 cents per gallon of ethanol. That comes to $3 billion a year. Also helping the business are environmental mandates (depending on where it is sold, some gasoline must contain up to 10% ethanol as an antismog measure) and energy independence mandates (national use of ethanol must meet certain minimums by various deadlines).”

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