More changes ahead for ethanol industry
Tuesday, March 4, 2008
by MARY BAXTER
Troy Hobbs says the U.S. remains in the midst of an ethanol boom with eight billion gallons of annual capacity in operation and another six billion gallons expected to come on line over the next few years.
Given that the U.S. annually consumes about 140 billion gallons of gas, "within the next probably 18 to 24 months, we will be approaching almost 10 per cent of the fuel in the U.S. being supplied by ethanol," Hobbs told those attending this week's wheat, corn, soy and coloured bean joint conference. And as the plants are built, they increasingly compete with each other for feedstock.
"Growers have a lot of options," he says, observing more than 86 per cent of the nation's ethanol plants are located in corn growing regions where they typically compete with up to eight others for corn.
Plant operators recognize they have to start marketing themselves to growers, he says, noting some are already beginning to ask the question of whether they can survive on US$6 corn.
As the market matures, Hobbs advises to expect consolidation in plant ownership, noting this trend is typical in developing markets. Case in point was last November's announcement of the merger of VeraSun Energy and US BioEnergy, the country's third and fourth largest companies respectively producing ethanol. More activity will take place over the next 18 months, he predicts.
Things may look rosy for ethanol and those who supply the industry, but production has its challenges.
Ethanol can't be transported in existing pipelines and so must be either trucked or conveyed by rail, which has meant extra costs and supply shortages.
Terminals also don't have the capacity to make different blends.
Nevertheless, "we're (Monsanto) feeling pretty positive long-term about ethanol," Hobbs says, noting the industry is tackling these challenges. He refers to research into establishing a national ethanol pipeline system. As well, companies are looking to improving their profit margins by vertically integrating by buying elevators and getting involved in blending, which currently holds greater profit potential than ethanol manufacturing thanks to a tax credit offered by the federal government.
"The market is playing itself out in helping to correct some of the issues out there," he says.
Hobbs also wonders if a decision by the country's fifth-largest fuel company, Marathon Petroleum Company LLC, to partner in ethanol production with a couple of plants may foreshadow similar arrangements by other established fuel companies.
New technology, such as fractionation, also offers the industry staying power. The technology increases production efficiency by removing non-fermentable products such as germ and therefore concentrating feedstock before processing begins.
The process also results in a higher protein dry distiller's grain, Hobbs says.
To address the demand this new industry creates, Monsanto's goal is to raise average corn yields to 300 bushels an acre by 2030, he says. BF