Wednesday, April 30, 2008
Brazil Ethanol Tariff
A staffer for the Joint Economic Committee said Democrats are considering suspending the tariff on imported ethanol to encourage U.S. farmers to dedicate more acres to food, instead of fuel. Current trade policy discourages U.S. firms from buying Brazilian ethanol, which is made from sugar cane and costs about a third as much to produce as corn-based ethanol.
Ethanol Notes Today
About 25% of U.S. corn is turned into ethanol, according to U.S. Agriculture Department estimates, and corn futures have risen 70% in the past year and hit record highs on increased demand to use the grain both as food and fuel.
In December, Congress passed an energy bill that mandates increasing ethanol production to 36 billion gallons a year by 2022 from 7.5 billion gallons in 2012.
Analysts estimate about 10% of ADM profits this quarter came from ethanol.
The American Farm Bureau Federation and other farm groups plan to defend government support for ethanol, which they say has helped lower gas prices,
Trade groups such as the Grocery Manufacturers of America, meanwhile, argue that increased production of corn for ethanol has driven up prices for corn, wheat and other grains. Those increases, in turn, have boosted prices for bread, meat and dairy products. The Grocery Manufacturers of America say that while Congress may be able to control the weather, it should scale back government-mandated ethanol production requirements. Those incentives, they argue, are causing farmers to plant corn rather than wheat and other grains. "Certainly, reducing the amount of corn (for energy purposes) would have an immediate impact on commodity prices and ultimately on the price of processed foods," said Scott Faber, vice-president of federal affairs for GMA.
The IFPRI, a think tank supported by governments and private foundations, also concluded that 30% of the rise in food prices between 2000 and 2007 is due to increased production of biofuels.
On Monday, Sen. Kay Bailey Hutchison, R-Texas, proposed freezing the ethanol mandate at current levels to reduce ethanol's impact on world food prices.
"Our models analysis suggest that if a moratorium on biofuels would be issued in 2008, we could expect a price decline of maize by about 20 percent and for wheat by about 10 percent in 2009-10. So it's this significant," Joachim von Braun, heads of the International Food Policy Research Institute, told reporters in a briefing.
In December, Congress passed an energy bill that mandates increasing ethanol production to 36 billion gallons a year by 2022 from 7.5 billion gallons in 2012.
Analysts estimate about 10% of ADM profits this quarter came from ethanol.
The American Farm Bureau Federation and other farm groups plan to defend government support for ethanol, which they say has helped lower gas prices,
Trade groups such as the Grocery Manufacturers of America, meanwhile, argue that increased production of corn for ethanol has driven up prices for corn, wheat and other grains. Those increases, in turn, have boosted prices for bread, meat and dairy products. The Grocery Manufacturers of America say that while Congress may be able to control the weather, it should scale back government-mandated ethanol production requirements. Those incentives, they argue, are causing farmers to plant corn rather than wheat and other grains. "Certainly, reducing the amount of corn (for energy purposes) would have an immediate impact on commodity prices and ultimately on the price of processed foods," said Scott Faber, vice-president of federal affairs for GMA.
The IFPRI, a think tank supported by governments and private foundations, also concluded that 30% of the rise in food prices between 2000 and 2007 is due to increased production of biofuels.
On Monday, Sen. Kay Bailey Hutchison, R-Texas, proposed freezing the ethanol mandate at current levels to reduce ethanol's impact on world food prices.
"Our models analysis suggest that if a moratorium on biofuels would be issued in 2008, we could expect a price decline of maize by about 20 percent and for wheat by about 10 percent in 2009-10. So it's this significant," Joachim von Braun, heads of the International Food Policy Research Institute, told reporters in a briefing.
Tuesday, April 29, 2008
ADM
The head of Tyson Foods Inc. called for ethanol subsidies to be swept away. Dick Bond, chief executive of the largest U.S. meat processor, claimed the diversion of corn to produce ethanol was inflating prices for animal feed, and warned that consumers faced steep rises in food prices.
ADM's net profit rose to $517 million, or 80 cents a share, up from $363 million, or 56 cents a share, a year earlier. Revenue climbed 64% to $18.7 billion.
Ms. Woertz ADM CEO (former executive at Chevron), said food prices were being driven by rising energy costs and global protein demand rather than production of biofuels.
"I think the supply fundamentals of world crops are improving," Ms. Woertz said on a conference call with analysts after the U.S. company reported a 42% rise in its net profit for its fiscal third quarter ended March 31.
ADM's net profit rose to $517 million, or 80 cents a share, up from $363 million, or 56 cents a share, a year earlier. Revenue climbed 64% to $18.7 billion.
Ms. Woertz ADM CEO (former executive at Chevron), said food prices were being driven by rising energy costs and global protein demand rather than production of biofuels.
"I think the supply fundamentals of world crops are improving," Ms. Woertz said on a conference call with analysts after the U.S. company reported a 42% rise in its net profit for its fiscal third quarter ended March 31.
Monday, April 28, 2008
Unprofitable Ethanol
1. We are seeing food problems with an ethanol mandate currently of 7 billion gallons. The government has dictated we us 36 billion gallons by 2022. Where will this be grown?
2. If ethanol is important and helpful, why the large tariffs on Brazilian ethanol?
3. Even with the heavy government subsidies, a new ethanol plant is now not profitable. Why build any more. Guess who will have their hands out for heavier subsidies.
Following is an earlier article. Corn prices have risen since it was written.
Fortune Feb 28, 2008
Lower profit margins clearly favor ethanol leader Archer Daniels Midland. And the fact some of ADM's big plants run on coal instead of natural gas makes ADM's cost advantage that much greater.
plans for as many as 50 new ethanol plants have been shelved in recent months
Spurred by an ethanol plant construction binge, corn prices have gone stratospheric, soaring from below $2 a bushel in 2006 to over $5.25 a bushel today. As a result, it's become difficult for ethanol plants to make a healthy profit, even with oil at $100 a barrel.
$4 corn is a result of the 31 new ethanol plants built since 2005, but investors won't keep bankrolling new plants if $4 corn keeps eating up their profits
the ethanol business isn't going away, at least so long as the federal government continues to mandate the use of biofuels -- 36 billion gallons a year by 2022, up from 7 billion last year-and impose hefty tariffs on imported ethanol. There is an oversupply of ethanol right now, but the yearly increase in the biofuels mandate means that demand will eventually catch up with supply.
2. If ethanol is important and helpful, why the large tariffs on Brazilian ethanol?
3. Even with the heavy government subsidies, a new ethanol plant is now not profitable. Why build any more. Guess who will have their hands out for heavier subsidies.
Following is an earlier article. Corn prices have risen since it was written.
Fortune Feb 28, 2008
Lower profit margins clearly favor ethanol leader Archer Daniels Midland. And the fact some of ADM's big plants run on coal instead of natural gas makes ADM's cost advantage that much greater.
plans for as many as 50 new ethanol plants have been shelved in recent months
Spurred by an ethanol plant construction binge, corn prices have gone stratospheric, soaring from below $2 a bushel in 2006 to over $5.25 a bushel today. As a result, it's become difficult for ethanol plants to make a healthy profit, even with oil at $100 a barrel.
$4 corn is a result of the 31 new ethanol plants built since 2005, but investors won't keep bankrolling new plants if $4 corn keeps eating up their profits
the ethanol business isn't going away, at least so long as the federal government continues to mandate the use of biofuels -- 36 billion gallons a year by 2022, up from 7 billion last year-and impose hefty tariffs on imported ethanol. There is an oversupply of ethanol right now, but the yearly increase in the biofuels mandate means that demand will eventually catch up with supply.
Fickle Government
Another issue with government programs is fickle politicians. Let a company try to plan a business path, only to have the government change, based upon changing winds. The latest is the growing uproar on food prices and shortages. So those small ethanol and biofuels producers who faithfully followed the government lead and mandates will get stuck.
Farm Futures April 28, 2008
However; in order to get over the funding hurdle, some changes were made to ethanol tax credits. The federal tax break on ethanol was reduced six cents a gallon, from 51 to 45 cents, and tax credits for biodiesel were stripped from the bill. The tariff on imported ethanol was extended through 2010.
The permanent agricultural disaster aid program pushed for by Senate Finance Committee Chairman Max Baucus, D-Mont., remains in the bill, however at $3.8 billion rather than the original $4 billion that was proposed. Baucus says that the important thing is that the program is there.
Farm Futures April 28, 2008
However; in order to get over the funding hurdle, some changes were made to ethanol tax credits. The federal tax break on ethanol was reduced six cents a gallon, from 51 to 45 cents, and tax credits for biodiesel were stripped from the bill. The tariff on imported ethanol was extended through 2010.
The permanent agricultural disaster aid program pushed for by Senate Finance Committee Chairman Max Baucus, D-Mont., remains in the bill, however at $3.8 billion rather than the original $4 billion that was proposed. Baucus says that the important thing is that the program is there.
Sunday, April 27, 2008
More Data on Damage of Biofuels
Government forced mandates continue to cause problems
It is now beyond dispute that congressional mandates on ethanol use are having a number of deleterious effects, soaring food prices chief among them.
So given that, plus recent findings that greenhouse gas emissions from ethanol and biofuels may actually be greater than those created by conventional gasoline, a natural question arises: Which presidential candidate will first call for a change in U.S. ethanol policy?
Yet hard facts show that ethanol mandates will do little to stem our oil import needs. Even if U.S. corn farmers and producers of advanced biofuels manage to meet the target set by Congress in the Energy Independence and Security Act of 2007 (36 billion gallons of biofuels per year by 2022), that quantity would equal only about 18 percent (by volume) of America's oil imports.
Meanwhile, the mandates are helping push food prices higher. Several factors are at work here, including a growing global demand for grain, the falling value of the dollar, higher energy costs and poor harvests. But there's no question that the ethanol mandates are a key factor in the rising price of food. And the consequences are troubling: Food costs have led to riots in several countries in recent months.
This month, the Coalition for Balanced Food and Fuel Policy, a group funded by domestic beef, pork and chicken producers, released a report estimating that ethanol mandates now cost U.S. taxpayers $33 billion per year. That figure—which includes the costs of the ethanol subsidies and higher food prices—amounts to about $106 for each American.
A year ago, the Center for Agricultural and Rural Development at Iowa State University determined that higher food costs resulting from ethanol mandates were costing each citizen about $47 per year.
Anti-ethanol forces are growing. On Friday, Texas Gov. Rick Perry, a Republican, requested a waiver from the federal ethanol rules, saying that the "misguided mandate is significantly affecting Texans' family food bill." A press release issued by his office declared that the corn ethanol sector was creating "artificial demand" for grain that "is devastating the livestock industry in Texas."
A World Bank report this month pointed at biofuels as a cause of higher prices, saying "almost all of the increase in global maize (corn) production from 2004 to 2007 (the period when grain prices rose sharply) went for biofuels production in the U.S., while existing stocks were depleted by an increase in global consumption for other uses."
It is now beyond dispute that congressional mandates on ethanol use are having a number of deleterious effects, soaring food prices chief among them.
So given that, plus recent findings that greenhouse gas emissions from ethanol and biofuels may actually be greater than those created by conventional gasoline, a natural question arises: Which presidential candidate will first call for a change in U.S. ethanol policy?
Yet hard facts show that ethanol mandates will do little to stem our oil import needs. Even if U.S. corn farmers and producers of advanced biofuels manage to meet the target set by Congress in the Energy Independence and Security Act of 2007 (36 billion gallons of biofuels per year by 2022), that quantity would equal only about 18 percent (by volume) of America's oil imports.
Meanwhile, the mandates are helping push food prices higher. Several factors are at work here, including a growing global demand for grain, the falling value of the dollar, higher energy costs and poor harvests. But there's no question that the ethanol mandates are a key factor in the rising price of food. And the consequences are troubling: Food costs have led to riots in several countries in recent months.
This month, the Coalition for Balanced Food and Fuel Policy, a group funded by domestic beef, pork and chicken producers, released a report estimating that ethanol mandates now cost U.S. taxpayers $33 billion per year. That figure—which includes the costs of the ethanol subsidies and higher food prices—amounts to about $106 for each American.
A year ago, the Center for Agricultural and Rural Development at Iowa State University determined that higher food costs resulting from ethanol mandates were costing each citizen about $47 per year.
Anti-ethanol forces are growing. On Friday, Texas Gov. Rick Perry, a Republican, requested a waiver from the federal ethanol rules, saying that the "misguided mandate is significantly affecting Texans' family food bill." A press release issued by his office declared that the corn ethanol sector was creating "artificial demand" for grain that "is devastating the livestock industry in Texas."
A World Bank report this month pointed at biofuels as a cause of higher prices, saying "almost all of the increase in global maize (corn) production from 2004 to 2007 (the period when grain prices rose sharply) went for biofuels production in the U.S., while existing stocks were depleted by an increase in global consumption for other uses."
Foods to Biofuels
By Brigid Beatty and Michael Aubele
VALLEY NEWS DISPATCH
Sunday, April 27, 2008
Corn and other food prices will continue to climb, experts say, although why is a matter of debate.
The high prices are having an effect on others, such as dairy farmers, who have to buy field corn to feed their livestock.
VALLEY NEWS DISPATCH
Sunday, April 27, 2008
Corn and other food prices will continue to climb, experts say, although why is a matter of debate.
James W. Dunn, a Penn State University agriculture professor, said increased ethanol production is a primary factor. The United States, he said, "has diverted a huge amount of corn crops and acreage into ethanol production."
A few years ago, Dunn said, 1 billion bushels of corn were used to make the biofuel. This year, he said, the amount of corn used in production is expected to range from three billion to five billion bushels, which means less corn for the nation's food supply.
Ethanol, derived from field corn, has seen the biggest price increase. O'Neill said the price of field corn is hovering at about $6 per bushel, whereas two years ago, it sold for about $2 per bushel.The high prices are having an effect on others, such as dairy farmers, who have to buy field corn to feed their livestock.
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