Thiesse's Thoughts

ETHANOL INDUSTRY DOING WELL

According to the Renewable Fuels Association (RFA), the U.S. ethanol Industry set a record for annual production in 2004, with total U.S. ethanol production at about 3.4 billion gallons. This was a 21% increase over the 2003 total U.S. ethanol production of 2.81 billion gallons. Based on the January 12, 2005, USDA “World Supply and Demand Report”, approximately 12% of the projected U.S. corn usage during the 2004-2005 marketing year will be utilized for ethanol production. This represents a total of 1.43 billion bushels of corn being utilized for ethanol production, which is a 22% increase over the 2003-2004 corn marketing year. It is estimated that about 17% of Minnesota’s total corn production is currently used for ethanol production.

There are 81 ethanol plants presently operating in the United States, with another 16 plants under construction.

ETHANOL BENEFITS
A study released by the Renewable Fuels Association found that on the average, the construction of a new 40 million gallon ethanol plant had the following impact on the community and area farm operators :

• A one-time boost of about $142 million to the local economy.
• Increases annual direct spending in the community by approximately $56 million.
• Creates about 40 full-time jobs associated with the ethanol plant.
• Provides an average annual return on investment of about 13.3% over a 10-year period to farm operators and other investors.
• Improves the basis for the local corn market, and the average price that farmers receive for their corn, by approximately 5-10 cents per bushel.

Another national study, recently released further substantiates the improvement in local basis and local corn prices. Based on 316 grain markets surrounding 12 new ethanol plants that were opened in the U.S. in 2001 ad 2002, the study concluded the following :

• The average increase in local corn prices at these grain markets was 12 cents per bushel, with a range of 5-19 cents per bushel increase.
• The greatest corn “price impact” is realized within 30 miles of the ethanol plant.
• Areas that typically have higher local corn prices experienced less corn price increase than areas that typically have lower local corn prices. There were smaller increases in the Southeast U.S. and Eastern Corn Belt, where basis was already tight, and larger increases in the Plains and Western Corn Belt states, such as Minnesota, Iowa, and the Dakotas.
• Other factors that influenced the impact on local corn prices were how large the local corn supply is, the amount of livestock in the region, and the corn procurement policies of the Plant.

The bottom line is that there are a lot of positives to producers, local communities, and to U.S. energy policy that are achieved by having a strong ethanol industry in the U.S. There are proposals in the U.S. Congress to expand ethanol production and usage in future years. We are likely to see continued interest in building additional new ethanol plants in Minnesota, Iowa, and other Midwestern states in the next few years.

Editors 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.