ENERGY: Market access, drought challenge ethanol producers

Ethanol producers across the Midwest are reeling from a challenging year filled with policy challenges, tight margins and uncertain corn crop expectations. But the young industry has faced these types of uphill battles before, most recently in 2008 when corn prices skyrocketed and oil prices dropped. The industry recovered, however, and currently accounts for 10 percent of the U.S. fuel supply, with the ability to produce more.

As the corn harvest comes to a close in the northern Plains, ethanol industry representatives express optimism that the industry will weather its latest series of challenges, but they caution that expanded market access is desperately needed in order for the industry to continue to grow.

“The industry as a whole is struggling with access to the marketplace,” says Lisa Richardson, executive director of the South Dakota Corn Growers Association and South Dakota Corn Utilization Council. Earlier this year, E15 (a blend of gasoline containing 15 percent ethanol by volume) was allowed into the market for use in 2001 and newer vehicles. The increase marked a much-needed opportunity to expand ethanol’s market share, but the oil industry immediately challenged the government’s decision to allow it and retailers have been slow to offer the new fuel option to their customers.

“E15 is in its early stages of implementation,” says Jeff Zueger, chairman of the North Dakota Ethanol Council and general manager of Blue Flint Ethanol in Underwood, N.D. “Challenges with implementation primarily reside around retailers verifying pump and storage equipment compatibility with E15. The good news is that even at today’s elevated corn prices, ethanol is priced 50 cents to $1 lower than gasoline. As we work to implement E15 and higher level ethanol blends, this price advantage will put additional gallons of ethanol into the fuel supply.”

North Dakota and South Dakota both offer incentives for retailers to install blender pumps, which dispense a variety of ethanol fuel blends, such as E15, E30 and E85, for use in flexible fuel vehicles (FFVs). Both programs have been extremely successful and, in fact, North Dakota has more blender pumps than any other state. Aside from offering higher blends to FFV drivers, retailers with blender pumps can more easily sell E15 to the larger vehicle pool, which can speed implementation. However, while local use impacts local producers and economies, even widespread adaptation in the Dakotas will not significantly impact ethanol’s national market share. “We really need the population bases to put their arms around it and the refiners to blend it up,” Richardson says.

Currently, the nation’s ethanol production capacity is greater than the industry’s market share, which Zueger says has led to some plants slowing down or shutting down production. This year’s severe drought has delivered additional pressure in the form of high corn prices. Because drought conditions varied in South Dakota, Richardson says the success rates of ethanol plants in the state will likely reflect their proximity to good crops. Southeastern South Dakota suffered much drier conditions than the northern part of the state, for example.

In North Dakota, the situation is a little brighter. “North Dakota corn growers produced a fantastic crop this year which will provide our plants with a market advantage in sourcing corn compared with facilities in drought impacted areas,” Zueger says.

The future success or downfall of the ethanol industry will have a noticeable impact on economies in the region. Minnesota and South Dakota each produce more than 1 billion gallons of ethanol annually. North Dakota’s four ethanol plants produce a combined 400 million gallons each year. All three states rank among the top 10 states in terms of production capacity. Iowa, with approximately 3.5 billion gallons of annual capacity, leads the list. South Dakota’s ethanol producers are the No. 1 corn consumer in the state, requiring 350 million bushels of corn per year, according to Richardson. By comparison, livestock producers are the second largest corn customer, using 80 million bushels each year. North Dakota’s ethanol producers require approximately 140 million bushels of corn each year. PB

Kris Bevill

Editor, Prairie Business

source: prairiebizmag

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