Ethanol Keeps Gas Prices Down

Rising gas prices have made headlines this year, but those prices could have been much worse if not for ethanol.

The Renewable Fuels Association sent out a media FYI release drawing attention to that fact, which is backed up by recent news reports.

Two recent news articles in The Wall Street Journal and the Dallas Morning News cited petroleum industry analysts who pointed to lower priced ethanol as one major factor in restraining gasoline prices nationwide.

Another reason for steady gasoline prices: the use of ethanol as an additive to gasoline is on the rise. While crude prices have soared, ethanol prices have dropped as much as 30% in recent months and are likely to drop more, Eitan Bernstein, an analyst with Friedman, Billings, Ramsey & Co., said in a report yesterday. Ethanol costs more than 60 cents a gallon less than gasoline, and gasoline suppliers can offset some of the rise in crude oil prices by blending their gasoline with small amounts of the cheaper fuel. (emphasis added)

Similarly, a story in the September 24, 2007 edition of The Dallas Morning News reported:

“You can thank renewables for doing that,” Mr. Feltus said.

OECD and FAO Are Assumption Experts

The Organization for Economic Co-operation (OECD) and FAO have released their “OECD-FAO Agricultural Outlook – 2007-2016″ report. It’s worth a look if you like pages and pages of assumptions. It’s already being quoted and used by the people who want to bash the development of biofuels, most especially ethanol. There’s also a background paper from their 20th meeting of the Round Table on Sustainable Development, held at the OECD on September 11-12 titled, “Biofuels – is the cure worse than the disease?” (pdf). I’m wondering who attended that concluded the following, “The conclusion must be that the potential of the current technologies of choice — ethanol and biodiesel — to deliver a major contribution to the energy demands of the transport sector without compromising food prices and the environment is very limited.”

Here’s an example of their admitting to lots of assumptions (which should be seriously questioned) in the Outlook report:

This Outlook does not analyse the developments in the biofuels sector, but treats biofuel production through implicit and exogenous assumptions in a number of countries. In particular these include the US, the EU, Canada and China, while ethanol production in Brazil is an explicit part of the sugar baseline.

Bio-diesel production, in contrast, is assumed to remain relatively limited in the US, due to lower profitability caused by high feedstock costs. Soya oil use for bio-diesel production is expected to reach 2Mt in2007 and to further increase to 2.3Mt in2011, with no growth assumed for the remaining projection years.

I had a college professor who always told us that to assume is to make an “ass” of “u” and “me.” I guess you might figure out what I think of these reports.

Head of Chevron Clueless

Or perhaps he’s just not happy with the growth of a renewable fuel like ethanol being produced here in America to replace our dependence on foreign sources of oil while also contributing to the cleaning up of our environment. Whatever the reason (you make your own conclusion) ABC Rural reports that David O’Reilly who is the CEO and Chairman of Chevron Corporation publicly said that “biofuel production from corn and other grains is not sustainable.”

It’s just another example of someone making wild and unsubstantiated claims in an attempt to derail enthusiasm and support for the building of a new industry that will not only help our country and environment but relieve our dependence on foreign sources of fuel.

I like his statement about needing new technologies that would use things like waste to make fuel. Duh. Like that’s not also being worked on here in America? Many forms of alternative and renewable energy are being developed simultaneously and will continue to be. Let’s see if Mr. O’Reilly is willing to put his investments where his mouth is. How about contributing to the solution instead of whining and complaining?

Thanks to Dax Mahoney for the heads up.

Farm Progress Show Musings

The holiday weekend caught up to us before we could get the following thoughts from the Farm Progress Show, held in Decatur, IL, posted at the end of last week. However, they’re still relevant. Thanks to Lou Malnassy, NCGA, for sending them along.

At a time when high-speed internet connections have tied growers and their suppliers closer together than ever before, the idea of thousands of people traveling to a farm show may seem out of date. In fact, say two National Corn Growers Association (NCGA) officers, today’s farm shows are better than ever.

Dickey agrees. “These are exciting times,” he says. “You can feel that here.”

Colorado Ag Groups Defend Corn Prices

After hearing national media coverage citing ethanol as the reason for higher grocery costs, Colorado Corn Growers, Colorado Farm Bureau and Ag Commissioner John Stulp decided to take a stand. Several Denver media outlets featured the story. You can see their coverage using the following links!

“Farmers Defend Themselves Amid Growing Prices” – This is a KCNC News 4 story by Mike Hooker. In the story he writes, “Colorado agricultural leaders say the special interest groups, who want to put the ethanol business out to pasture, are misleading the public.

Fighting back, Colorado ag leaders called a news conference Thursday. They praised U.S. farmers and said corn growers aren’t getting a windfall from ethanol when production cost increases like labor and, particularly, the spike in fuel costs are considered.”

“Colorado corn growers address grocery prices” – This is a 9News.com story by TaRhonda Thomas. In the story she writes, “”The national media would have you believe the increased demand for corn… is responsible for increases in everything from apples to zucchini,” said Mark Sponsler, executive director of the Colorado Corn Growers Association. “The real impact of the corn for fuel industry is much less significant than some would have you believe.”

“They ignore the impact of petroleum and higher energy costs on production, manufacturing, transportation, packaging, utilities and the fact that wages account for more than sixty percent of every dollar spent at the grocery store,” said Sponsler.”

Popcorn Poppycock

I know Chuck already did a post on the Iowa “Popcorn Propaganda” event, but here are my thoughts to add, along with another picture.

This is Iowa Corn Promotion Board intern Paul Brees with the fruits of his six hours of labor – 38.5 pounds of popcorn. The purpose of Paul’s popping project was to point out to the press and the public that pinning popcorn prices on ethanol production is pure poppycock.

The Iowa photo-op did generate some publicity. The Associated Press story headline reads, “Ethanol Makers Join Food vs. Fuel Debate.” The story was good, the facts were right, the ending comments from the Jolly Time popcorn people fell pretty flat, but the headline was all wrong. It makes it sound like all of the sudden the corn and ethanol industries woke up and decided to defend themselves. The media just hasn’t been listening.

Here is a link to the popcorn facts sheet from the Iowa Renewable Fuels Association that provides some points for the media to ponder. Among them … that tub of popcorn at the movie theater contains .15 pounds, or 2.4 ounces, of popcorn kernels prior to popping. And that five dollars worth of popcorn from the farmer filling all those trash bags would translate to about $1280 at the movie theater.

By the way, in case you were wondering what happened to all that popcorn, Mindy Williamson with Iowa Corn says they donated it to local daycares and two homeless shelters. Not bad for a $5 investment!

What he said … Johanns Meets the Press Club

It was inevitable that when Agriculture Secretary Mike Johanns spoke at the National Press Club on July 27 someone would ask about ethanol. The transcript says it all:

QUESTION: Corn-based ethanol may help the nation reduce its dependence on foreign oil, but critics say that ethanol costs almost as much as the energy it produces. Isn’t corn-based ethanol a wasteful way to produce energy, and won’t it increase the cost of food?

SEC. JOHANNS: No, and it isn’t.
[Laughter.]

We studied that a lot at the USDA, and years ago when the plants were not as efficient, when ethanol was barely used in our country, there were a lot of articles about the inefficiency of producing ethanol and all the energy, etcetera. We’ve debunked that in our studies. We’ve put that issue to rest. Independent studies have looked at the same issue. You very definitely have efficiency here.

The other thing I will tell you, in the United States we’re going to grow corn. We just simply are. We do it very well; we do it better than any country in the world, and our farmers are going to grow corn. And I think it’s important that we do everything we can to create a marketplace.

Let me offer a thought, and we’re talking about maybe an address that really gets down to this issue of food versus fuel. Every year we have some inflation relative to food, 2 percent, 3 percent, somewhere in that vicinity, some years maybe a little bit more, a little bit less. This year with all of this debate raging we anticipate that food prices across the board will be impacted 2 to 4 percent, about average, maybe a little bit higher. Then when you look at that, many articles I read see that and then they go right to the conclusion, it’s because of ethanol, it’s because the price of corn got high and that’s the reason.

They leave out a whole big piece of the analysis. What’s the big piece of the analysis? The farmer doesn’t get all of that. I’m sure they wish they did. But they get about 20 cents of the retail dollar. Actually the increase in the price of energy to ship that food can have as much or more of a profound impact on the price of that food than the corn you feed to the animal.

I’m just telling you, this is a very, very complicated supply chain. And if you have reached the conclusion that because food is up 3 percent this year or 4 or 2 or whatever it is, that that’s because of ethanol, and you’ve missed all of that, you’re not telling the full story. And you’re not telling an accurate story, in all due respect.

We have the accurate story at the USDA. We study this all the time. We buy or provide money for nutrition programs, so of course we want to know what the price of food is doing. And anybody who wants to write an in-depth article on that or do a series on it, we’d love to provide you with the information on just how complex the food chain is and how impacts in that food chain relative to fuel to transport it, or to promotion costs or whatever it is, can actually have a more important impact on the cost of that food than the price of bushel of corn.

You go, Jo!
Link to USDA transcript

Feed Price Outlook Favorable For Livestock Producers

Recent rains in the Midwest have led to an improvement in the overall corn crop which is also leading to lower prices. What that means is that livestock producers are likely to see lower feed costs, despite the increased demand for corn to make ethanol.

The University of Illinois’ Farm Gate has an article that does some number crunching and paints a more favorable picture for the livestock industry as prospects for an abundant corn crop continue to look brighter.

A Chicken Little Story?

Remember all the crying foul by Tyson this spring on the price of corn? Tyson’s earnings have fared well this past quarter despite its repeated stirrings of the food versus fuel debate (pdf). The Financial Times also reports that Tyson managed to have a healthy profit this past quarter–$111 M. Tyson managed to rebound on last years losses by posting a larger than expected profit. The food giant posted a loss of $52 million for the same time period last year.

That doesn’t sound like the sky is falling to us!