Ethanol market and momentum here to stay

Biofuels offer U.S. farmers unprecedented opportunities to earn profits from their land but those opportunities come with significant challenges, say spokesmen for Texas corn and grain sorghum producers.

“We see a lot of opportunity to make a lot of money in this business,” says Wayne Cleveland, executive director of the Texas Grain Sorghum Producers. “We are excited about the price of grain and the demand for corn and grain sorghum,” adds David Gibson, executive director, Texas Corn Producers Board.

Cleveland and Gibson discussed opportunities for Texas grain producers during a renewable fuels seminar recently at Belton.

“The ethanol business is changing,” Gibson said. He said geopolitics, especially in the Middle East, make ethanol production more promising than was the case just a few years ago. “They've cut back on oil production,” he said “And increased demand from China and India has pushed prices up.”

Gibson said crude oil projections just two years ago indicated potential prices of $35 a barrel in the near term and as low as $25 a barrel by 2015. “In 2006 Hurricane Katrina hit and oil spiked to $55 a barrel and got as high as $75.”

Highs have eased off but long-term estimates still predict oil in the $45 to $50 per barrel range through 2015.

“At $45 profitability for ethanol stops,” Gibson said. “But it looks like oil will stay at that level or above it, especially if the China demand continues.”

To meet U.S. demand, entrepreneurs, investors and co-ops have built 97 ethanol plants across the country. Others are under construction.

In 2000, the United States produced 1.36 billion gallons of ethanol. By 2006 that figure had ballooned to 4.26 billion gallons. “We were close to 5 billion gallons by the end of 2006,” Gibson said. In 2007, projections call for more than 7 billion gallons of ethanol.

Cleveland said investors spend about $1.25 per gallon to build a 100 million gallon per year capacity ethanol plant. Selling ethanol on the spot market pays for construction quickly, he said.

‘Here to stay’

“With ethanol at $4 a gallon, some could paid off construction within a year,” Cleveland said. “We're not likely to see $4 ethanol soon, but the momentum and the market are here to stay. A lot of 20-year old plants are paid for.”

Cleveland said farmers have backing they did not have before. “Renewable fuel production has a 71 percent approval rate,” he said. “And 80 percent of the folks (U.S. consumers) are pulling for you.”

Gibson said U.S. grain producers need a good crop in 2007 to meet renewable fuel demand. “We need increased grain production in Texas from this next crop. We have good moisture and we need acres to meet the demand. In 2008, we'll need 3 billion bushels of corn or grain sorghum to meet demand for ethanol production.”

Gibson said yield trend lines show increased corn production over the past few years with technology poised to take it even higher. “Companies are looking at drought and heat tolerance, for instance.”

He's also concerned about losing farmland to urbanization. We have 160 million acres in the United States conducive to soybean and corn production. Acreage is decreasing. Acreage in CRP, especially in Texas, probably will not produce corn or grain sorghum efficiently. That's probably true in the Midwest, too.”

Gibson and Cleveland are concerned about taking too much grain out of traditional markets, livestock and exports, particularly.

“Texas is a grain importing state,” he said. “And ethanol plants need consistent supplies of grain to run every day. Growers need to be aware of an increased amount of grain coming in. We need it to keep the livestock industry viable.”

Livestock concern

Cleveland said grain interests do not want to lose livestock the way cotton lost domestic mills. “We're meeting with the livestock industry,” he said.

Cleveland said grain interests support a Texas A&M bioenergy alliance that combines agriculture and engineering to enhance renewable fuels research. “We hope to get $8 million from the state legislature to fund the initiative.”

Cleveland and Gibson said the country needs research into plants and technologies that use feedstocks other than grain for ethanol. “We need more research into cellulosic ethanol,” Cleveland said. “We need to use corn stover, wheat straw and other waste products to make ethanol. We have to do that.”

Both said the industry needs producer involvement to maintain current grain markets and to meet increasing demands for fuel.

They also said the industry needs more research into how livestock producers can use distillers grain, a co-product of ethanol production. “Distillers grain replaces some of the grain used for fuel production,” Gibson said.

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