When it comes to the issue of ethanol production, manufacturers of the corn-based biofuel and the livestock industry often sit at opposite ends of the table.
But the two sides have at least one thing in common these days: Their bottom lines are suffering.
Dan Sanders Jr., general manager at Front Range Energy in Windsor, said the local ethanol plant shut down its production for two weeks in August — not long after corn prices skyrocketed.
With the cost of the commodity hitting all-time highs, the plant couldn’t make a profit.
It was the first such halt in operations at the plant in its six-year history.
The wide-spread drought is expected to diminish corn production this year across much of the U.S. — including the vital Corn Belt of the Midwest, and the anticipated tightened supply has caused a sharp upswing in prices for the crop. In July, corn prices topped $8 per bushel, and prices have stayed above that mark since.
Livestock producers have been hit hard — spending more on corn and other inputs than what they can sell the animals for. Steve Gabel of Eaton, who operates Magnum Feedyards, said his business is seeing about a $150-$160 loss per head.
But prices have now reached levels to where ethanol producers, too, are sucking air — serving as yet another symptom of the worst drought in half-century.
“There’s corn out there ... we can still find it,” Sanders said. “It’s just a matter of how much you’re willing to pay for it ... and how much money are you willing to lose in the process?”
Compounding the problem is the fact U.S. drivers have been cutting back on their gasoline consumption, Sanders said, and gas and ethanol prices haven’t kept up with the increases in corn prices.
The current situation also has caused ethanol plants in Nebraska, Minnesota, Indiana and Kansas to temporarily idle production, with many others across the nation not running at full capacity. Weekly ethanol production hit a two-year low this summer, and as a result, the industry may consume 10 percent less of this year’s corn crop than last year, government and industry officials said.
Experts predict more plants to go offline if corn prices stay high and the price for ethanol stays relatively low.
Sanders, like agricultural economists, doesn’t anticipate any relief in the near future, and he predicts difficult times at Front Range Energy. He said he doesn’t anticipate any layoffs for the 33 employees who work at the Windsor plant, but he said more temporary production shutdowns are likely.
“I think it’s going to be a while before there’s much in the way of relief,” said Stephen Koontz, an agricultural economist and professor at Colorado State University. “Until there’s some kind of promise of a large corn crop, which means at least next year, maybe longer, there’s not much hope.”
In recent years, the ethanol industry’s growth and increased demand for corn has helped push corn prices up. Between 1997 and 2006, corn prices averaged $2.15 per bushel.
With corn prices having doubled or more in recent years, many in the livestock industry have had more difficulty making a profit.
And now, at a time the drought has made life worse, many — including six governors of livestock and poultry producing states and livestock organizations — have called for the Environmental Protection Agency to temporarily waive the Renewable Fuels Standard for ethanol being blended in gasoline.
The Renewable Fuels Standard is requiring U.S. fuel companies to blend 13.2 billion gallons of ethanol into gasoline by 2013, and next year the ethanol-blending obligation will increase to 13.8 billion gallons.
An analysis by Purdue University suggests a waiver of Renewable Fuels Standards would reduce corn prices by 47 cents to $1.30 per bushel, depending on the extent of the waiver, oil prices and the weather.
The EPA says it’s considering the request and looking for public comment.
Even officials with the United Nations Food and Agriculture Organization and the International Food Policy Research Institute have recently said the U.S. should suspend its binding biofuel mandates in light of the looming food crisis.
But Sanders, along with others in the ethanol industry and U.S. Agriculture Secretary Tom Vilsack, have pushed back, claiming that waiving the Renewable Fuels Standard for ethanol would do more harm than good. They say the U.S. biofuel industry has reduced gasoline prices, created jobs, moved the U.S. closer to energy independence and paved the way for second-generation cellulosic biofuels.
Sanders also took time this week to dispute the claim the ethanol industry uses 40 percent of the nation’s corn supply. He explained the industry is the first user of 40 percent of the harvested corn crop, but of that 40 percent, ethanol plants are only using the starch out of the kernel to make ethanol, and all of the proteins, fats, and fibers are returned to the food chain in the form of a livestock feed called distillers grain.
In addition to producing about 48 million gallons of fuel ethanol, Front Range Energy also produces more than 400,000 tons of livestock feed annually.
When everything is factored in, Sanders said, the ethanol industry is only a net user of around 16 percent of the total U.S. corn harvested.
So today, even though ethanol producers and the livestock industries have something in common with their operating losses, they’ve still found plenty to disagree about.
“It’s all definitely received some attention,” Sanders said. “But right now, our attention is primarily focused on making sure everyone here has a job.”
I think it’s going to be a while before there’s much in the way of relief. Until there’s some kind of promise of a large corn crop, which means at least next year, maybe longer, there’s not much hope.
— Stephen Koontz, Colorado State University agricultural economist and professor