Ethanol industry struggles through regulatory change

Michael Giberson

Usually I wouldn’t take pleasure in reports an industry is losing money. But when the industry is is a net drag on society sustained almost entirely by governmental action rather than economic contribution — when we’re talking about ethanol — then I will take a bit of pleasure.

Reported by Minnesota Public Radio: “Ethanol industry lurches in wake of lost subsidy, oversupply“:

WORTHINGTON, MInn. — After predicting they would survive the end of a major federal subsidy without problems, it looks like officials at the nation’s ethanol producers may have been too optimistic.

Since the subsidy ended Dec. 31, ethanol profit margins have declined sharply, even slipping into negative territory. Experts see no quick turnaround in sight.

Now that the subsidy has disappeared, the ethanol downturn is being felt nationwide, including in Minnesota. The state’s $2 billion-plus industry ranks fourth in the nation in capacity and production.

At the Al-Corn Clean Fuel ethanol plant in southeast Minnesota, CEO Randall Doyal sees how the loss of the subsidy has hurt this business. He said his profit margin — the difference between the cost of making the corn-based fuel and what he can sell it for — has disappeared.

Unfortunately, it is mostly transitory pain, and the industry will survive this little economic storm under the sheltering arms of the Renewable Fuels Standard.

One part of the problem is that the petroleum refining industry stocked up on ethanol at the end of last year, when the blenders tax credit was still in place. Not surprisingly, demand for ethanol dropped in January (and yet some in the ethanol business seem surprised). In addition, the high price of gasoline is leading consumers to drive less, also reducing demand for the ethanol blended into gasoline.

[Doug Punke, CEO of Renewable Products Marketing Group] said another plus for the ethanol industry is the overseas market. Brazil, a country that produces its own ethanol, but where demand is high, has been a major customer.

“We’re seeing some export demand pick back up, which is necessary for this industry right now to balance out that supply and demand,” he said.

Last year U.S. ethanol companies sold about 8 percent of their production abroad.

What? We’re exporting home-grown American energy? Quick, somebody call Congressman Markey’s office, I’m sure he’ll want to put a stop to it right away!

RELATED: The Des Moines Register , “Ethanol 11 cents per gallon in red in January.”

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4 thoughts on “Ethanol industry struggles through regulatory change

  1. corn ethanol is fine for local production & consumption BUT TO SHIP IT TO SOUTHERN STATES is a travesty… we need sweet potato ethanol in the South, anything to build up rural economies, export not import fuel and produce a healthier food product than corn flakes & potato chips & grain sweetners ….843-926-1750 hire Larry FIRE Bobby House District # 114 vote in November

  2. There was no ethanol subsidy. There was a blenders tax credit called the VEETC that expired in December 2011, but the credit did not go to ethanol producers. The blenders credit has absolutely nothing to do with ethanol demand. Ethanol is blended into gasoline according to a table in EISA 2007 and the quotas for blending rise every year until 2022. The lack of demand for ethanol is because the consumption of gasoline is declining in the U.S. because of priceing and the economy. This year we will hit the “blending wall” when all of the gasoline in the U.S. has 10% ethanol in it and even though next years ethanol quota rises, there will be nowhere to put it. EISA 2007 was supposed to spur E85 production and consumption but that is going nowhere. E15 won’t avert the blending wall because the EPA doesn’t even have the environmental tests completed so it can’t be sold legally to the cars that were waivered, plus the waiver is voluntary and the gasoline producers have made it clear they will not produce E15 because of liability concerns and gas stations don’t want to pump it for the same liability concerns and who would put a product in their gas tank that reduces their mileage further and voids their warranty because there are no car manufacturers with warranties that cover E15.

  3. Consider a sales tax on cigarettes. It is equally a tax on cigarettes if the seller of cigarettes is technically obligated to pay the tax or the buyer is technically obligated to pay the tax. Similarly with the subsidy, it doesn’t matter much whether the buyer or seller of the ethanol receives the subsidy, it is still an ethanol subsidy.

    A further, it was an ethanol subsidy largely captured by ethanol producers. While the blenders tax credit went to the refiners or distributors that bought ethanol to mix with gasoline, refiners were willing and able to pay more to ethanol producers because of the credit.

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