According to a story published this week in the New York Times, the bottom has fallen out of the ethanol economy. The article, published Feb. 12, 2009, and titled "Ethanol, Just Recently a Savior, Is Struggling," reports that of the nation’s 180 ethanol production plants, 24 have shut down in just the past three months due to unprofitability, taking approximately 2 billion gallons of production capacity offline. The Renewable Fuels Association estimates that more than a dozen ethanol companies are in financial distress.
The corn-based ethanol industry and the federal government’s pro-ethanol policies have been blamed by some in the meat and poultry industry for driving up the price of corn, which is the base grain for most of the nation’s livestock feed and is thus a key factor in the price of meat and poultry, to record high levels -- as high as $8 a bushel last summer. A faltering ethanol business could mean good news to meat and poultry processors as well as livestock producers if ethanol’s corn needs slacken and corn prices drop as a result.
Well, maybe, cautions Dennis Avery, director of the Center for Global Food Issues and a fierce critic of ethanol and pro-ethanol policies. "I’m reluctant to concede that the New York Times is right about anything concerning ethanol," he told MEATPOULTRY.com. "There’s still an ethanol mandate in place," he added, referring to Congress’s mandate that corn-based ethanol production reach 15 billion gallons by 2015.
Avery said he’s seen no indication that the Obama Administration plans to back off from the pro-ethanol pledges Barack Obama made during the presidential campaign. "He argued for more, not less, farmer-owned ethanol plants," said Avery, who noted that Rahm Emmanuel, President Obama’s chief of staff, not long ago suggested that no good crisis should be let go to waste. What that could mean in terms of ethanol, Avery commented, is that the industry’s present troubles could be used as a pretext for a bailout. Indeed, this is what Avery thinks the Times was up to with its article, he said.
But according to the Times story, at least part of the ethanol industry’s troubles stem from the fact that while corn prices have come down from the record highs, they haven’t fallen back to the stable levels of $2-$3 per bushel that American agriculture can usually sustain. On Feb. 13, corn for March delivery was priced at $3.66 per bushel. Avery told MEATPOULTRY.com that he’s heard from farmers that in order for corn production to meet the federal mandates for food, feed and ethanol, 90 million acres would have to be planted in corn, and the farmers would need a price of better than $4.30 per bushel to break even. "I have to tell them there’s no way they’re going to get it," he said. Other farmers, he said, have rented farmland to cash in on federal alternative-fuel production subsidies and credits, but the rents they’re paying will require $4.70 corn to break even.
On the other side of the ethanol equation, demand, the bottom has fallen out, according to the Times. With oil trading at less than $35 a barrel, down from nearly $150 a barrel less than two years ago, the demand for oil alternative fuels such as ethanol has dropped sharply. The current economic crisis has also reduced overall fuel consumption; the Times reports that experts predict oil consumption in both 2009 and 2010 will be 6% lower than in 2007.
What Dennis Avery does concede is that with the economy in flux and such fundamental factors as fuel consumption and pricing as well as agricultural production and pricing, it’s difficult to forecast the impact of ethanol’s future on corn prices and thus livestock and meat pricing. "We’re in unknown territory to some degree," he told MEATPOULTRY.com. "We don’t know the final outcomes."