Posts tagged “corn prices”
Our brand new weekly newsletter — Energy Trends Insider — debuted this week. We had stories on the implications of the U.S. corn crop, the state of Cleantech investing, Patriot Coal’s bankruptcy, and the potential of pyrolysis oil.
Interested readers can find more information on the newsletter and subscribe at Energy Trends Insider. To give a flavor for the kind of content, I want to share the story on the situation with the U.S. corn crop and how that can potentially impact upon the domestic ethanol sector. This has been a story that we have been on top of for two weeks; had ETI debuted a week earlier this would have been our lead story which was well before the story received much mainstream attention. In fact, I have not seen any detailed analysis yet on the potential implications of this story — but ethanol futures have moved sharply higher in the past two weeks.
Potential Impacts of Poor Corn Crop on Ethanol Market
By: Robert Rapier
I have long felt that one of the biggest threats to the U.S. ethanol industry is a major drought/crop failure in the heart of corn country. This year we may be experiencing such an event. Recent reports indicate that what had been expected to be a record crop of corn has been downgraded such that only 40% of the corn crop is being classified as in good or excellent condition. This is down 48% versus last week and 69% versus a year ago.
Corn prices are naturally surging in response; current corn prices are 21% higher than they were a year ago. Because so much of the corn crop is devoted to meeting ethanol mandates, there is a potential supply conflict being set up between food producers and ethanol producers.
A regular commenter on the R-Squared blog made some reasonable, articulate, and civil comments under my previous post. Rather than address them in the comment field I’ve opted to give my response (which got rather lengthy) in a new post.
If the EPA doesn’t want to up the blend wall, there’s plenty of demand for ethanol around the world. It’s an excellent oxygenate, if nothing else. And there’s no shortage of smog filled cities.
Nobody is arguing to remove the freedom to blend corn ethanol into fuel as an additive if desired by refiners. A 2004 CARB study showed that ethanol actually increased smog forming emissions relative to non-oxygenated gas by 45%. Two years later the EPA dropped the requirement to oxygenate gas. Modern cars can meet very strict emissions standards in a variety of ways.
The official stated goal of ethanol mandates is to reduce dependency on foreign oil, not smog. Although, spending billions to create a corn ethanol refinery infrastructure to replace a modest portion of our oil with a fuel that itself derives 70% of its energy content from fossil fuels seems like a rather (pick a word) way to accomplish that goal. A corn crop can be seen as just one of many steps needed in a process to convert diesel, natural gas, and coal into ethanol.
Upcoming I am off to Malaysia on Saturday for a business trip. I will actually spend some time in Bintulu, so I am looking forward to driving by and seeing Shell’s gas-to-liquids (GTL) plant there. I am unsure about my prospects for Internet access over the following week. When I was in India, I was without Internet for eight days, but I have been told that most likely I will have Internet for the duration of my stay. But this is a business trip, so I probably won’t have all that much time to write anyway. I do have three essays in the pipeline that I will trickle out while I am gone. The first is a guest essay from… Continue»
Executive Summary: The current cost to produce a gallon of ethanol is approximately $3/gal. The current price of ethanol is $2.86/gal, which explains why ethanol producers are shutting down. If corn and natural gas prices remain high, I think ethanol has to rise to something like $3.40-$3.60/gal to make it worthwhile to ethanol producers. So, if I was a commmodities investor, I would probably go long ethanol right now. The only risk factors I can see – given that there is a mandated (and rising) demand for ethanol – is if corn or natural gas prices collapse. ————————— This is an update to a post I originally made back in February 2008: Corn Ethanol Economics. While this is approximate, I… Continue»
Last year, with corn bouncing around $3.70/bu, I wrote an essay called The Mythical Ethanol Threat. I noted the number of new ethanol refineries under construction, and predicted that overbuilding would lead to additional ethanol mandates (which it did). I wrote – Note to self: Corn futures to double again by 2009. Today corn for September delivery traded at $7.50/bu. Corn for later delivery flirted with $8/bu. Why has this happened? Lots of reasons: Increased demand due to the ethanol mandate, increased costs due to sharply higher fuel, fertilizer, and pesticide prices (all due to higher oil prices), and now decreased supply is the icing on the cake. As I warned in Unintended Consequences, all it would take was a… Continue»
For the first time ever, with oil prices pushing $140/bbl on Friday, the U.S. national average price for gasoline cracked $4/gal: Gas price record reaches $4 a gallon NEW YORK (CNNMoney.com) — Gasoline rose to a milestone mark Sunday as the national average compiled by motorist group AAA reached $4 a gallon for the first time. The national average for regular unleaded rose 1.7 cents to $4.005, according the daily measure on the group’s Web site. That surpassed the previous record of $3.989 set Thursday. People are starting to get the message, as gasoline demand is softening. This week I had to rent a car. I had requested a small, fuel efficient model. Guess what? Fresh out. How about this… Continue»
A reader asked me a while back to take a look at the claims of Robert Zubrin, and comment. So I took a look at his claims, and while I found things that I felt were wrong, I was generally in agreement on his big picture stuff. I concluded with: Overall, Zubrin is not completely in left field. He strays out there now and then, but his methanol argument is OK. I don’t consider him at all a crackpot… But today he stepped out onto thinner ice with an editorial that spoke out in favor of our current biofuel policies: The case for more biofuel Let’s have a look: Let’s start with the allegedly misbegotten incentives. The United States invests… Continue»
What a vicious chain of events our politicians have set into motion. It just continues to worsen. It started out innocently enough. Oil prices were climbing. Our energy production was shifting to an ever greater extent to countries that are hostile to the U.S. So, Step 1 is to propose a solution: 1. Subsidize ethanol production to encourage biofuels and enhance energy security. However, subsidies didn’t do the trick. It was still too expensive to produce ethanol. People still chose gasoline derived from hostile sources over more expensive ethanol. What we really needed was Step 2. 2. Let’s mandate ethanol usage. At the point that the subsidy turns into a mandate, things change. Now, the fuel doesn’t have to be… Continue»
And the news is bad. First up, an issue that is shaping up to be a major battleground between states. Nate Hagens brought this issue up on yesterday’s API call, but it was part of the lost transcript: Ethanol Boom Saps Water Mike Adamson remembers when water wasn’t such a problem. As a kid growing up on his family’s cattle feedlot along the Colorado-Kansas border, “you could dig a post hole and see water runnin’ in the bottom,” he recalls. Today, Adamson is 48 and in charge of the family business, Adamson Brothers and Sons Feedlot, a holding ranch for cattle as they go to market. And the water, he says, is disappearing. “The lakes are gone. The wetlands are… Continue»
I know this is my second pessimistic post this week, but along with an energy crunch, I have been concerned about a food crunch. The whole ethanol love affair has had me worried for a long time about the impact on food supplies. My concern has been that as we diverted corn to ethanol, corn prices would go up (affecting food prices) but that also other crops would be affected. Some cropland would be shifted to corn, to take advantage of the artificial market created by the ethanol mandates, and this could cause acreage of other crops to fall short. And if you look at USDA Long Term Crop Projections, you will see that in fact, as corn prices climbed… Continue»