The Dreamy Time When Ethanol Wasn’t a Dirty Word

FoodvsFuel 1It seems like it was a long time ago, kind of a dreamy time when it seemed agricultural demand would never end.  I’m talking about January of 2007.  That was the year that I gave the “Commodity Outlook” at the Southwest Agricultural Conference at the University of Guelph campus at Ridgetown Ontario.   At the time everything was about surging agricultural demand for biofuels.  Everybody was predicting higher prices and that’s about exactly what happened.  I remember at the time, speaking to all those people, it seemed like the sky was the limit for both farmers and biofuel.

Of course the times are very different now.  I remember at the time telling farmers that in order for our American friends to meet their demand for corn there would have to be about 13,000,000,000 bushels produced.  At the time, that seemed like something right out of the cosmos.  Needless to say, we did hit over 13 billion bushels that year and we are almost there this year even under very tough conditions.  So we have proved that we can grow corn, the harder part has been getting the ethanol sector to stand the test of time.

In the intervening time and especially in 2008 and the first part of 2009 ethanol plants closed almost on a weekly basis in the United States.  Some of it was simply bad management, some of it was bad luck and some of it was just the luck of the draw.  When the economics turns against you and you’re not ready there is a long way down.  Speaking there that day in January of 2007 before several hundred farmers on several occasions at the Southwest Agricultural Conference, it was pretty hard for any of us to envision that.  Ethanol was still not a dirty word.

So as the corn price retreated in 2008 and in 2009 farmers were having a hard time with the realization that this new industrial demand for corn was crumbling.  To top it off it was pretty obvious especially in a place like Ontario that feed demand was dropping off quickly.   We were going into an uneven time with regard to future biofuel demand and to some extent in January of 2010 we are still very much there.  Getting back the gravy of solid industrial demand from ethanol could really boost the North American crop sector.

So it is with interest that I read Todd Neeley’s article, “Better Margins for Ethanol” on DTN, where Todd told of how many in the ethanol industry believe the economy will continue to improve and so will ethanol’s future.  For instance in the article he talked about oil hovering around $80 per barrel and how the stars are starting to align for the ethanol industry.  Of course the ethanol industry and many farmers in the United States are still trying to push the US Environmental Protection Agency to allow E15 and to reconsider including international indirect land-use change in the low carbon fuel standard.  All of this will boost ethanol’s future.

Ethanol plants have begun to spring to life again in the United States.  According to the American renewable fuels Association, since December 2009 17 ethanol plants have come back online.  According to Scott’s article, in December 2008 there were 172 plants in production compared to 189 as a December 29, 2009.  There are also 11 plants that are listed under construction by the renewable fuels Association.

So in this cold January of 2010, it’s almost like we smell a bit of steak wafting on a warm barbecue somewhere.  It looks like from a corn/ethanol perspective there is hope again to go back to the good old days of 2007.  Not so fast in Canada though.  Our government has ordered a study into the environmental and health effects of producing ethanol and biodiesel after other countries found that some of the facilities that make these fuels may be behind problems with air water and human health.  In other words it’s almost like the Canadian government wants to prove that ethanol is still a very dirty word.

It is an interesting conundrum.  Clearly to me ethanol is seen as much more positive in the United States than it is in Canada.  I learned today that I will be speaking in Edmonton Alberta on January 20, 2011 to the Association of Alberta Agricultural Fieldmen.  Part of my topic will be about biofuels and its effect on the Western Canadian economy.  I will be delivering that speech in the heart of Canadian oil country.  The last time I gave a speech in Alberta it was pretty clear to me biofuels were seen as a threat and not an opportunity.  Needless to say, they have invited me back again so I must be a great ambassador for ethanol and biofuels or my jokes and speaking delivery they like.  At least I go into it knowing that in this great country not everybody feels the same about biofuels and ethanol.

If I was a betting man I wouldn’t bet against a bit of ethanol resurgence in 2010,but it’s never going back to the way it was in January of 2007 regardless of American renewable fuel standards.   Ethanol paid a sharp political price with the food versus fuel thing and with technology marching on something tells me we’re never going back to the way it used to be.

Some of you might say, well that’s great for now Phil, but what would you say if oil went to $147 a barrel again?  Yes I know, you should never even muse about never saying never. Finding the right balance in the ethanol/corn/food fuel debate will continue to challenge.