Ethanol: One Farmer’s Point-of-View

Rural economic development at it's finest. An industry built in a rural area offering a variety of skilled employement positions and using locally produced inputs.

Ethanol.  It is a very complex, yet, easily simplified subject.  And it seems like more and more people are developing opinions about it. Here is mine.

First, let me lend my qualifications to this issue.   As a farmer who produces both livestock and corn, the ethanol industry affects me.  As a consumer of fossil fuels, both on the farm and in the household, the ethanol industry affects me.  As a resident of rural Iowa, living within 100 miles of several ethanol plants, the ethanol industry affects me.  Justin sat on a board and poured his heart and soul into an attempt to start up an ethanol plant around 10 years ago, right before ethanol took this state by storm.  Unfortunately, he was just a little before his time, and his efforts failed.  I stood by his side through the loss of that dream (and a sizable financial investment), so the ethanol industry affects me on a personal level as well.

Before the ethanol boom, corn prices were painfully low. Around $2.00 per bushel.  Farmers were dependent on government subsidies.  There was a lot of talk about adding value to corn.  How to expand the market for it?  Value-added this….value-added that.  And along came ethanol.  At first, farmers were skeptical, which is typical.  Farmers take enough risk on a daily basis, and their thresholds are usually maxed out. I was fresh out of college and working in a farmer’s co-op when meetings started popping up, informative meetings on investing in ethanol plants that were trying to get started.  The rumor mill got to running about a plant that was built by farmers near Preston, MN and how wildly successful it had been.  Before you know it, the ethanol bug bit Iowa’s farmers and they were scrambling to invest in the business.

As the years passed and plants got built, there was suddenly competition for corn, and the price went up.  $3 per bushel, then $4.  It’s gone higher than that, but we have been able to count on $3-4 corn pretty well in recent years.   All of a sudden, farmers quit caring about that government check that was coming.  Grain subsidies are based on the price per bushel of corn, so as the price went up, the subsidies dried up.  Yes, we still get payments from the government, but not nearly as much as we used to.  And that is a very good thing.

This is what is left over after corn goes through an ethanol plant. It makes excellent cattle feed. There are many different "varieties" of it.

The distillers grains produced by ethanol plants are great for mixing with cattle feed to make it more appetizing to them.

Another good thing about ethanol production is that it provides a cheap by-product, called distillers grains, that makes a great livestock feed.  Our livestock farm has done nothing but expand along with the ethanol industry, simply because we have been able to count on an affordable, quality feed produced along with ethanol.

Let’s not forget the product itself, ethanol.  It burns cleaner than fossil fuel.  It takes less fossil fuel to produce a gallon of ethanol than it does to produce a gallon of gasoline. Awesome, right?  To add to that, it is produced right here, in the heartland of America, by Americans.  And as if that weren’t enough…corn is a lot more renewable than oil.

This ethanol plant is just 10 miles from our house.

Ethanol plants have provided employment opportunities here in rural Iowa that were not available before.  High-tech jobs, high paying jobs.  Construction and maintenance jobs.  The railways, which had nearly become obsolete, are now booming with trains.  Ethanol has bolstered our economy.

Lots of rail cars carrying corn go in to the plant, and lots of rail cars leave the plant carrying ethanol and distillers grains.

The efficiency of ethanol production has improved by leaps and bounds over recent years.  It has become just as economical, from a water perspective, to produce ethanol as is does to produce gasoline.  4 gallons of water to produce a gallon of ethanol, 3-5 gallons of water to produce a gallon of gasoline.

Ethanol helps to keep the price of gasoline low.  Have you ever looked at the prices at the pumps?  The higher the ethanol content, the cheaper the price.  My thrifty budget really appreciates that.

I personally have not seen any ill effects from the development of the ethanol industry.  I will admit that there have been challenges, and there will continue to be.  Does it bug me that ethanol receives a tax break? Sure.  It bugs me just as much as the oil industry’s tax breaks do (or subsidization of anything for that matter). As long as ethanol is given a fair chance against competing industries, I see no reason why it couldn’t stand on its own.

Many local farmers take advantage of the close market for their corn. Here a truck is leaving the plant after delivering a load of corn.

Does ethanol have an effect on food prices?  Yes.  It has brought the price of corn up to the true production cost by competing for bushels.  Farm subsidies used to hold corn prices artificially low.  But, ethanol is not the only thing that has increased food prices.  The increasing cost of oil has had an effect too.  Coincidentally, ethanol helps to keep the cost of fossil fuels under control by introducing competition to the market.

I have confidence that the good people working to produce ethanol will continue to meet these challenges head on and improve even more upon this positive value-added industry.  There are a lot of advancements coming down the pike, and it will be exciting to see where bio fuel production is headed.

Advertisements

10 responses to this post.

  1. Posted by Marilyn Platner on December 3, 2010 at 7:58 pm

    AMEN!!

  2. Posted by Charles Wildman on December 4, 2010 at 3:43 pm

    as a mixed cash grain and pork producer I can agree with most of your arguements in defense of the ethanol industry. However, since I just sold a farm to pay for my loses in the pork industry that are largely driven by rising feed cost from the ethanol “boom” I am less excited than many to support the industry.

    I believe you left out the degree to which the whole industry is being protected by import tariffs and mandatory usage laws and outright subsidies. This industry can’t stand on its own. Also don’t forget you are still likely getting subsidies on your crop ground that “helped to keep prices low”.

    While I donn’t dispute your defenses, I think there are some other considerations that a taxpayer/consumer might want to think about as he/she trys to balance out this “food fight”.

    No ill will is intended in these comments, just comments. You do a great job on your blog and I greatly appreciate your efforts.

    • Thanks for your comments Charles. As I said, I’m not exactly comfortable with the subsidization of anything. I guess I should clarify that when I say subsidies I mean any sort of special breaks or treatment given to an industry by the government. I really wish our lawmakers would apply some common sense when it comes to applying preferential treatment to any industry. Ethanol can’t stand on it’s own because if it were to do so it would be at an unfair disavantage to a subsidized fossil fuel industry. That’s why I say…remove ALL subsidies from EVERY industry (including ag) and let the free market decide what gets produced here and let the consumer pay the true price of goods. And yes, I do admit, we still get a direct payment. I wholeheartedly disagree with direct payments to farmers, but just like the ethanol industry, I cannot turn them down without putting myself at a competitive disadvantage. It may sound like talking out of both sides of my mouth…but it is, unfortunately, the way it is. I understand that ethanol has affected feed prices adversely and it takes a pretty sharp pencil to raise livestock nowadays. My heart goes out to you as you face such losses.

  3. Hmmm…interesting. I won’t pretend to be as educated as you are about ethanol, but two years ago, I went to the Iowa Turkey Federation’s annual meeting and listened to an economist talk about ethanol. This was the first time I’d ever heard anything bad about it, but they made it sound like it was a bad thing for the turkey industry because of how much it raised the cost of feed for us (corn based feed.) Apparently we can’t use the byproducts like cattle can?

    The other points he brought up were that the state mandates that ethanol blended gas be cheaper than regular so that may not be true everywhere, and there are a fixed number of acres on which corn can be grown, and with urban sprawl, those acres are going down. Thankfully, yields are also going up, which helps counteract that, but eventually, the demand for corn will drive up corn prices so much that it will be hard for livestock farmers to produce (again, maybe turkey farmers can’t use those byproducts? Or maybe it’s because not all areas have access to those byproducts?) and it will then affect the grocery prices.

    So I guess I have mixed feelings about the ethanol industry. I love that it is a cleaner, renewable fuel, but is it truly renewable? Or are we maxing out on the amount that can be made? We cannot make unlimited amounts of ethanol, so while it might be part of the solution, I don’t think it will ever be the WHOLE solution.

    I hope that made sense. Like I said, I don’t think I know as much about it as you do, so I hate to argue, but that’s what I DO know. I tried to email this to you privately, but I couldn’t find your email address. You can take it down if you want and it won’t hurt my feelings. 🙂

    • Katie, I don’t dispute anything you’re saying. I know that the increasing corn price has been hard on livestock producers. I’m just trying to point out that the ethanol industry isn’t all bad, and has done a lot of good. My feelings are somewhat mixed as well, and I’d like to think that I am optimistic that there will be a solution that everyone can tolerate. I do think the subsidization of ethanol needs to be backed off (well, I’d be happy if they were eliminated altogether, but I don’t think that is realistic) but backed off in a way that will do the least harm to all affected. No offense whatsoever taken to your comments. If we all agreed all the time this world would be awfully boring!!

  4. “Ethanol helps to keep the price of gasoline low. Have you ever looked at the prices at the pumps? The higher the ethanol content, the cheaper the price.”
    Baloney. Currently the price of a gallon of ethanol is higher than the price of a gallon of gasoline at the terminal where E10 is made. This also happened in 2008 when corn hit $7 / bushel. There is no way to guarantee that ethanol will decrease the price of gasoline at the pumps. The only thing that is guaranteed is that ethanol has to be blended into gasoline at ever increasing levels until 2022 no matter what the cost. And the cost really goes up when property is damaged because lots of engines were never designed for ethanol blended gasoline and whole industries are effected, like the marine industry and the aviation industry. Yes, ethanol free auto gas is an approved aviation fuel but it is rapidly disappearing and will be gone by 2012. Of course the whole purpose of the RFS mandate in EISA 2007 was for the production, distribution and consumption of E85 in flex-fuel vehicles and loads of corporate welfare were put into that act for E85 programs, but E85 is going nowhere especially when ethanol is so expensive. Flex-fuel vehicles get terrible mileage on E85 so the corresponding price has to be at least 33% less than E10. Right now the average price spread across the nation is only 12.1%. With the high cost of infrastructure upgrades for E85 and the reluctance of the auto industry to make flex-fuel vehicles that nobody wants the whole ethanol program will implode about 2013, especially considering nobody can make cellulosic ethanol economically and it is supposed to make up all ethanol increases in EISA 2007 after 2014 when corn ethanol production is capped.

    • Thank you for your comments. As I’ve stated before, I’m not exactly excited about the subsidization of the ethanol industry. I agree with you on E85, not sure why anyone would think that is the way to go, I’d be much more favorable to blender pumps. And I also agree, you should have the choice to not burn ethanol in your engines. What I am trying to do here is simply point out that the ethanol industry is not ALL bad. There are a lot of positives with ethanol too. We must be careful not to throw the baby out with the bath water. Thanks for stopping by. 🙂

    • Thank you for your comments. As I’ve stated before, I’m not exactly excited about the subsidization of the ethanol industry. I agree with you on E85, not sure why anyone would think that is the way to go, I’d be much more favorable to blender pumps. And I also agree, you should have the choice to not burn ethanol in your engines. What I am trying to do here is simply point out that the ethanol industry is not ALL bad. There are a lot of positives with ethanol too. We must be careful not to throw the baby out with the bath water. Thanks for stopping by. 🙂

  5. Posted by Dan Rickels on December 16, 2010 at 7:12 am

    ethanol employs 115,000 people in the U.S.! it also is subsidized a lot LESS than the foreign oil that we get from over seas. Brazil’s vehicles all use high rate ethenol, made from sugar cane. Henry Ford’s cars used ethanol way back when!-they called their’s moonshine! Thanks to Big Oil buying and shelving all these patents, we could only buy big gas-gusslers. Ethanol brings down the price of gas, and also does not leave tar-balls when spilled! I believe there is enough corn for feed AND fuel, for fuel uses very little corn when you get all these by-products back for livestock feed. Crop farmers could not survive on $2:00 corn, it had to raise some anyway. prices I”ll admit are way too volitile for grains which do not always have much to do with U.S. grain stocks!

Comments are closed.

%d bloggers like this: