Ethanol Leadership

I am extremely happy and excited about the continued leadership the President has been providing in the promotion and development of Ethanol. We need infrastructure, additional supplies, new technologies, cheap conversion equipment and more.

Many people, as the article below indicates, argue about the impact on food, efficiency, costs, the environment, etc. While I agree there are issues with ethanol... real and anticipated. We as a country need to move in the direction of alternative fuels and energy.

Ethanol is one piece of the solution to help transition our country from oil dependency to fuel/energy independence. There are other pieces... such as solar, wind, biodiesel and more.

We need more leadership from Congress, the President and leaders from around the US.

CNNMoney.com 3/5/08

Bush: Use ethanol to get off oil

Bush calls for energy independence, stands by ethanol although environmental benefits of the corn-based fuel are questioned while it is blamed for surging food prices.

By Steve Hargreaves CNNMoney.com staff writer

March 5 2008: 4:03 PM EST

WASHINGTON (CNNMoney.com) -- President Bush said the United States should "get off oil" Wednesday as crude prices hit record highs and renewed his support for ethanol use despite concerns the corn-based fuel is driving up food prices and isn't more environmentally friendly than gasoline.

"We gotta get off oil, American has got to change its habits," Bush told a crowd at the Washington International Renewable Energy Conference, a meeting of global energy officials and an adjoining trade show that's the largest all-renewables show ever held in the United States. "It should be obvious to all, demand has outstripped supply, which makes prices go up."

As the conference got into its second day, crude oil on the New York mercantile exchange jumped nearly $4 on falling oil inventories, trading over $104 a barrel and setting a new all-time record.

Part of Bush's plan to wean the country off oil includes big investments in ethanol.

The energy bill passed by Congress and signed by Bush in December calls for refiners to replace 36 billion gallons of gasoline with ethanol by 2020, up from about 7 billion gallons today. About half of that will come from ethanol made with corn.

"That's good if you're a corn farmer, and it's good if you're concerned with national security," Bush said.

Bush acknowledged some of the problems with ethanol, particularly its role in pushing up the price of corn. The price of corn has doubled since 2006 which has pushed up the price of chicken, beef and poultry - livestock fed with corn.

Also, crops like wheat and soybeans are becoming more expensive as farmers devote more acreage to grow corn as they rush to satisfy the demand for ethanol.

"I'm beginning to hear complaints from cattleman about the price of corn," he said. "We're going to do something about it."

Bush said his administration has spent over $1 billion to make cellulosic ethanol - which can be made from non-food plants like grasses or wood chips - cost competitive. He also highlighted the use of biodiesel, which is diesel fuel made from agricultural and food waste.

"I'm confident the United States can meet those goals, for the sake of national security and the environment," he said.

Ethanol's impact on the environment is also up for debate. The U.S. government has previously said ethanol is about 20 to 30% cleaner than gasoline, even factoring in that it is less efficient than gasoline. But recent studies have called that into question, suggesting ethanol is no better than conventional fuel.

In the renewable field overall, Bush said his administration has spent $12 billion on research and development since he's been in office, all part of an effort to wean the nation off big oil and increase investment in solar and wind power.

Bush said wind capacity has increased 300% since he's been in office, and solar has grown as well.

But critics say Bush can hardly take credit for promoting renewables when he has held up incentives like production tax credits and refuses to cap carbon dioxide emissions.

"It's like Jamie Lynne Spears giving a talk on abstinence," said Daniel Weiss, director of climate strategy at the Center for American Progress, a liberal think tank referring to a teenaged TV star who recently disclosed she was pregnant.

Bush reiterated his call for a global cap on carbon dioxide - the main gas behind global warming - but said the United States should not act until nations like China and India do as well.

"These agreements must include solid agreements by every major economy," said Bush. "No country should get a free ride."

Bush also called for greater investments in nuclear power to combat global warming while meeting the world's growing energy needs, a call that was met by applause from the audience.

And, in his trademark humorist style, applauded the participants at the conference.

"I appreciate your commitment to renewable energy," he said. "It probably didn't help today when I rode over in a 20 car motorcade."

Ethanol Bust

The following article is troubling in two ways. One it neglects the current development of cellulosic ethanol and second it doesn't speak to the economic impact of gasoline getting close to $4 per gallon. Both of these things will make ethanol more economical.

Investors, economist, consumers, politicians and others need to understand that corn based ethanol is a necessary component of meeting the energy/fuel needs of the US. It's an emerging technology and industry. Over the next several years we are going to see an enormous amount of change and development.... uncertainty. This uncertainty is what investors don't like.

Eventually corn based ethanol will be transition to cellulosic ethanol... fuel made with switch grass or other biomass material... the development of ethanol plants and the necessary infrastructure is critical and the development needs to continue. Investors need to keep in the 'game' today... rather than get shut out later. Its truly only a matter of time before this industry takes off.

2/28/08 CNN.com/Fortune

The ethanol bust

The ethanol boom is running out of gas as corn prices spike.

By Jon Birger, senior writer

NEW YORK (Fortune) -- Cargill announces it's scrapping plans for a $200 million ethanol plant near Topeka, Kan. A judge approves the bankruptcy sale of an unfinished ethanol plant in Canton, Ill.. And that was just Tuesday.

Indeed, plans for as many as 50 new ethanol plants have been shelved in recent months, as Wall Street pulls back from the sector, says Paul Ho, a Credit Suisse investment banker specializing in alternative energy. Financing for new ethanol plants, Ho says, "has been shut down."

How can the ethanol industry be slumping only two months after Congress passed an energy bill most experts consider a biofuels boon? The answer is runaway corn prices.

Spurred by an ethanol plant construction binge, corn prices have gone stratospheric, soaring from below $2 a bushel in 2006 to over $5.25 a bushel today. As a result, it's become difficult for ethanol plants to make a healthy profit, even with oil at $100 a barrel.

Just look at Verasun (VSE). In the third quarter of 2007, Verasun's gross profit margin shrank from 37% to 12%, as its corn costs rose from $2.05 a bushel to $3.32 a bushel. And, remember, corn prices today are 60% higher than they were back then (whereas wholesale ethanol prices are up only 30%.)

The margin crunch now afflicting ethanol producers is something I predicted when I first wrote about the "Dot-Corn" boom in Fortune last March (see "The Great Corn Gold Rush" ). Here's an excerpt:

[In the summer of 2006] when corn was $2 a bushel and oil was $70 a barrel, ethanol plants were minting money. They averaged $1.06 in profit for every gallon of ethanol sold, according to Credit Suisse. Today, with oil at $60 and corn at $4, ethanol producers typically net an average of only 3 cents...

If corn spikes to $5 -- a real possibility, says A.G. Edwards commodities analyst Dan Vaught -- or oil declines to $50, ethanol's once-fantastic margins would turn negative. That possibility is creating tensions between ethanol producers and corn growers, two groups whose lobbyists are normally attached at the hip.

Looming over all this is a huge catch-22: $4 corn is a result of the 31 new ethanol plants built since 2005, but investors won't keep bankrolling new plants if $4 corn keeps eating up their profits

The shakeout was inevitable. That said, the ethanol business isn't going away, at least so long as the federal government continues to mandate the use of biofuels -- 36 billion gallons a year by 2022, up from 7 billion last year-and impose hefty tariffs on imported ethanol. There is an oversupply of ethanol right now, but the yearly increase in the biofuels mandate means that demand will eventually catch up with supply.

What probably has changed permanently are ethanol economics. The days of cheap corn are over, and the industry's new, lower profit margins clearly favor ethanol leader Archer Daniels Midland (ADM, Fortune 500) over all the smaller producers like Verasun, privately-held Poet Energy and the many, many farmer-owned ethanol cooperatives. ADM's massive 200 million-gallon-a-year ethanol plants simply have better economies of scale than their 50-gallon-a-day rivals. And the fact some of ADM's big plants run on coal instead of natural gas makes ADM's cost advantage that much greater.

Of course, I'm not saying anything that Wall Street doesn't already understand. Since the new energy bill was signed by President Bush on Dec. 19, Verasun and Pacific Ethanol (PEIX) are each down 38%.

And ADM? It's up 10%.