Deconstructing the Earth Policy Institute
So, I start checking it out, and what do you know, I find some holes in their methodology.
1) Not all ethanol plants consume corn. Some use cheese whey, some use milo, other use a few other inputs. I went through the list and found 16 plants that use some or entirely different feedstock than corn. Some use a mix of corn and milo, wheat starch, or barley. These 16 plants produce (or will produce) a total of 406.4 million gallons/year, or about 3.7% of ethanol production. Not a big deal, but something to point out.
2) It appears the authors assigned a production factor of 2.6 gallons/bushel of corn to plants that are in production as of December 31, 2006 and a factor of 2.8 gallons/bushel of corn to plants under construction. I would say 2.6 is a bit low - anything built within the last two years (which are quite a few) would easily be doing 2.8 gallons/bu. The first plants built in the 1980's and 90's, sure, I can see that being low, but I would use 2.8 for both operating and in construction plants.
3) Therefore, using their data, they would have you believe that current and under construction plants will use 104.34 million tonnes (metric), or approximately 4.11 billion bushels. This is assuming all plants use corn, and in production plants produce 2.6 gal/bu. With the non 100% corn using plants removed, and using 2.8 gal/bu factor, I come up with 3.81 billion bushels. OK, big whoop you might say, but that equates to 300 million bushels, and at 180 bu/ac, that's 1.67 million acres. That's approximately 15% of Iowa's corn crop. So, let's say their figures are plus or minus a few NC Iowa counties. Naw, no margin of error there, eh?
4) I hate it when people assume. That's why this statement really gets me: In addition, easily 200 ethanol plants were in the planning stage at the end of 2006.
OK, where's the documentation for this statement? The list they use that contains existing and under construction plants totals 192 facilities, including non-corn exclusive plants. WTF? Are we going to double the number of ethanol plants by 2008?
Les Brown, here is what is going to happen: demand for corn will become tight in the near future (2007 and possibly 2008), then ethanol plants will start faltering as they cannot maintain the pace with high input prices and lowering crude oil prices. Crude was $56/barrel the other day. Corn was $3.45/bu at the Lincolnway Energy plant at Nevada. You think they will be making a lot of money at these prices? Not nearly as much as when crude was at $72/barrel and corn was $2.00/bu!
In essence, the marketplace will shake some plants loose and an equilibrium will develop between corn production and ethanol production. The US government does not need to step in. In fact, if they wanted to reduce the number of plants on the drawing boards, simply remove the fuel tax credit for ethanol. That would hurt a lot of pro formas in deep red.
I am still bullish on ethanol - I just got into the distillers dried grains + solubles feed business (by product of the dry-grind ethanol plants, like Lincolnway), and I think it is a superior feed source for cattle operations. However, I just think that the plants that are the most efficient and have the least amount of debt will be the ones who will survive in this environment. If too many plants are built, some will go out of business, be bought for pennies on the dollar (not necessarily by ADM/Cargill et al, but other investors), and then brought back on line with better, more efficient technology and have a better strategy to source lower priced inputs. They may come back in if/when there is a glut of corn again, or a greater war breaks out in the Middle East and crude becomes $100+/barrel.
Cellulosic ethanol is still a few years out, but I am concerned about the environmental impacts it may have by removing millions of tons of residue from corn and wheat fields. While some might call the stalks and stems left after harvest as waste, we farmers realize that they also contain nutrients that will break down and return to the soil after time. Taking these nutrients out means we have to replace it with more commercial inputs. Oftentimes the market price of the residue removed is less than the cost of replacement fertilizer, so it makes little sense to bale and remove the stover and straw, unless it goes to livestock bedding, in which manure may get applied back to the field to replace missing nutrients.
Sorry for the rant, I but I get as worked up about environmentalists using fuzzy math to dictate my way of life and business as Jordan does about Nancy Pelosi raising the minimum wage and screwing up his business.