NASHVILLE, Tenn. – As the biofuel train gains speed, more are wondering about its final destination.
No one knows who might win the competition for corn between livestock and ethanol producers. No one knows how more grain and ethanol can be moved on an already stressed transportation system. No one knows how planting decisions might change this spring as farmers try to capture extra dollars for a popular crop.
“We are under an historic transition,” said Greg Doud, chief economist for the National Cattlemen’s Beef Association.
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While the association has no biofuel policy, it is most likely to look at funding research on the nutritional value of distillers grain to maintain cattle performance and beef quality.
The issue was discussed at a special forum at the cattlemen’s annual convention held in Nashville Jan. 31.-Feb. 3.
Planting intentions remain an unknown, and it’s not clear where enough acres of viable land might be found to grow a 150 bushel per acre crop.
It is unlikely land will be taken out of the national conservation reserve program, in which 36 million acres are protected. Most of that land is marginal and not suitable for growing corn.
In addition, the World Trade Organization has provided little guidance on subsidies paid for its production. Most of the world is moving toward more production, Doud said, so it could be a hard sell to remove supports.
Bill Holbrook, a researcher with the private market consulting firm Pro-exporter Network, said a number of issues need to be solved within 10 years to make the biofuel industry work well without building up one sector at the expense of another.
“It is a very complex issue and you can’t take piece of it and change it and think it will fix the whole thing,” he said.
“There is nothing out there that is one saviour that will make everything back the way it was. We are in a changing environment so we have to be on top of all these different pieces and see how they fit and how they affect our individual business operation.”
Expansion has been explosive, with 110 plants now producing five billion gallons per year and another 70 under construction. The government mandate is to produce more than 10 billion US gallons (38 billion litres) by 2010.
One of the key variables to expansion is the price of crude oil.
The U.S. Department of Energy speculates oil could go to $70 US per barrel and many analysts are confident it will remain at least around $50 to $60 for the next 19 months.
To keep ethanol viable federal and state subsidies are available.
The plants do not receive federal subsidies. Instead, blenders receive 51 cents per gallon, which expires in 2010. The 54 cent import tariff ends in 2009 to keep out foreign ethanol.
In addition, the government is becoming increasingly interested in cellulosic ethanol using wood waste and grass and has earmarked more research dollars for alternative feedstuffs.
Until these plants are on line, corn remains the main feedstuff. Ethanol manufacturers are in direct competition with livestock feeders who cannot afford to pay inflated prices for corn.
Bids could reach $5 per bushel as long as subsidies last, crude oil remains high and plants continue to make money.
A new plant can still break even with corn priced that high, depending on its debt load. Many of the established plants have already been paid for so they can afford to pay more for corn.
Another unknown is the value and quality of distillers grain, a byproduct of ethanol production. While it has been used for many years, Holbrook said there has never been such a large supply on the market.
The USDA does not survey the supply or prices so it is difficult to know how much is used.
Holbrook’s research indicates Iowa produces a surplus of about two million tonnes a year that must be exported out of state, while
Nebraska and South Dakota each produces surpluses of 1.5 million tonnes.
Prices for distillers grain may drop as more plants come on line, although another option would be to find alternative uses such as fertilizer, human food and oil extraction.
Transportation to move corn and ethanol will add stress to the railroad system.
More production could see a 33 percent increase in rail demand and a 74 percent increase in trucking.
