Ethanol Industry Doing Well

Following are the latest statistics on the U.S. ethanol industry through December 2006, and some projections for the future:

Ethanol Production: Slightly over 5 billion gallons of ethanol were produced in the U.S. in 2006, which is up from 4 billion gallons in 2005, and up from 3.4 billion gallons in 2004. There are currently 114 ethanol plants operating in 18 states in the U.S., with an annual capacity of 5.6 billion gallons.

Future Ethanol Plants: There are currently over 78 new or expanding ethanol plants in 19 states that are under construction, which will add another 6 billion to the total U.S. ethanol production over the next few years. In addition, the planning process has been initiated on over 250 additional potential new and expanded ethanol plants, some of which will produce cellulosic-based ethanol.

Corn Usage: For 2006-07, it’s estimated that ethanol production will utilize about 2.1 billion bushels of corn, or approximately 20% of the total U.S. corn production in 2006. This is up from 14% of the total U.S. corn crop in 2005 being used for ethanol production. The amount of corn used for ethanol production in the U.S. is expected to increase to over 3 billion bushels for 2007-08, which is one of the main reasons that the average market price for corn has doubled in the past 8 months, and why farmers are expected to plant an additional 10-12 million acres of corn across the U.S. in 2007.

Ethanol Usage: The rise in ethanol production in 2006 (25% increase) was exceeded by the increase in demand for ethanol, which was at a 33% increase in 2006 compared to a year earlier. Ethanol is now blended into 46% of the gasoline in the U.S., primarily as a 10% E-10 blend. In 2006, ethanol comprised about 3.5% of all the gasoline used in the U.S. About 500 million gallons of ethanol were used for E-85 (85% ethanol) production, which is now available at over 1,000 stations across the U.S., and growing rapidly. The number of flex-fuel vehicles (FFVs), which run on E-85 gasoline blends, is also increasing rapidly, and FFVs are now being widely promoted by the U.S. auto industry.

Ethanol Imports: Ethanol imports into the U.S. from other counties totaled 653 million gallons in 2006, which was an increase of 520 million gallons over 2005 import levels. Most of the imported ethanol comes from Brazil, which primarily produces ethanol from sugar cane. The ethanol that is imported into the U.S. is subject to a $.54/gal. import tariff, which shows how strong the demand for ethanol in the U.S. currently is.

Cellulosic Ethanol: In order to reach the rapidly increasing demand for ethanol, the U.S. will likely have to expand beyond corn-based ethanol production. The Bush administration recently set an energy policy goal of producing 35 billion gallons of alternative fuel in the U.S. by 2017, which is a very lofty goal. Cellulosic ethanol production, which is currently in the research and development stage, holds considerable hope to help meet the expected future demand for renewable fuels. The U.S. Department of Energy has awarded $1.2 billion in development grants to six ethanol plants that will convert grasses, corn and wheat stover, wood products, etc. into ethanol.

Bottom Line
The U.S. ethanol industry is growing rapidly, and has been quite profitable in recent years. Farm operators and other individuals that have invested in local ethanol plants have received some nice returns on their investments in the past few years. Corn and soybean producers have benefited from much higher grain prices in recent months, and landowners have benefited from higher land values and cash rental rates in many parts of the U.S.

However, there are some growing painsthat go along with the rapid increase for ethanol production in the U.S., such as the impact on the livestock industry, and potentially of rising consumer food costs. The U.S. livestock industry utilizes about 6 billion bushels of corn annually to feed beef, dairy, swine and poultry, which is are eventually converted to meat, poultry and dairy products consumed by consumers. Many fear that the rapidly rising feed costs to livestock producers will ultimately lead to higher food costs for consumers.

There is also public controversy surrounding infrastructure upgrades to highways, railroads, locks and dams, etc., which will be needed in the future to transport grain and other materials to ethanol plants, and to transport ethanol and other by-products from plants to where they will be utilized. Overall, the future for the ethanol industry and renewable energy in the U.S. is very bright; however, there are going to be a few challenges along the way as these industries develop.

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.