In 2007 Let The Ethanol Gold Rush Take Hold

If change is our only constant in agriculture, you have to take the good with the bad.  With the changing psychology in the grain markets, Ontario farmers in late 2006 were the recipients of the good.  A 80 % rise in the futures price for corn and a 12% rise in the futures price of soybeans and meteoric rise in wheat prices were good for the soul.  The ethanol gold rush it would seem had finally come.  It’s coattails were dragging other agricultural commodities upward.

In 2007 we shall see how that plays out.  The key will be to keep the ball rolling.  “Bio-fuel” it would seem is a very good thing.  Case in point is what’s happening now within Ontario.  As of January 1st all gasoline sold in Ontario must be blended with 5% ethanol.

In order for all the gasoline in Ontario to be blended with 5% ethanol we need 850 million litres of ethanol annually.  The only problem is we only produce about 365 million litres annually now.  So, we need to produce more ethanol or import it.  Even though ethanol plants are being proposed and built across Ontario we still don’t have enough capacity on line.  Importing ethanol will surely happen in 2007.

It didn’t have to be this way.  Across Canada there is really no consumer driven pent up demand for any “bio-fuel” policy to change the gasoline paradigm.  Prime Minster Harper could jump start the process by fostering a policy to forge 5% across the country.  10% would be even better.  We’d be burning cleaner fuel and breathing cleaner air.  It would seem win, win.  But not so fast, if it would be like that, it would be done. We have big oil here in Canada too.  A 5% cut in their profits would certainly cut into Conservative political strength.

On the ground you don’t feel any ground swell of support among consumers for bio-fuel, unlike the United States.  There fuels such as E-85 are showing up at suburban icons like Wal-mart and others.  The Americans have a set policy to reduce their dependence on foreign oil.  President Bush in his state of the Union address cautioned Americans on their “addiction” to oil.  Americans have a real feeling to do something about their energy addiction.  Putting ethanol in their tanks has become an accepted principle for a strong America.

They are backing up there industry with a policy to get ethanol capacity on stream.  They have mandated in the Energy Act of 2005 production of 7.5 billion litres of ethanol by 2012.  However, the US has capacity running now at 5 billion litres with at 3.5 billion litres being built.  So they are set to break through the 7.5 billion mark by 2008.

Reasons for this are pretty apparent and it has a lot more to do with profit than simply making the right choice.  Building an ethanol plant over the last year has been akin to a license to print money.  Look at it this way.  In Ontario the construction of some ethanol plants are subsidized by government.  These plants buy corn and make ethanol with the resultant by-products being CO2 and dry distiller’s grain or DDG’s.  They sell the ethanol; most of the CO2 and the DDG’s for almost as much as they pay for the corn.  The $520 million Ontario Ethanol Growth Fund also subsidizes the ethanol industry.  The provincial government to encourage production to satisfy their goal of 5% ethanol blend by 2007 and 10% by 2010 set up this fund.

That’s where we get into the political side of the equation.  It is the provincial Liberal’s policy to forge ethanol into a blend with gasoline across Ontario.  Last week the first part of that came into fruition with the 5% blends.  The question is now when will the other shoe drop when it comes to mandating 10% blends of ethanol with all the gasoline consumed in Ontario?  With an election date of October 4th, 2007 you can bet the announcement is coming.  Whether that will be from Premier Dalton McGuinty, Progressive Conservative leader John Tory or NDP leader Howard Hampton I don’t know

Ethanol boosters and Ontario farmers will surely be waiting for that announcement.   According to our provincial government, ethanol-blended gasoline will reduce greenhouse gas emissions by up to 800,000 tonnes annually, which is equivalent to the emissions produced by 200,000 cars.  As we start off 2007, we’ll take that.  Hopefully the rest of the year for Ontario farmers will be straight uphill from here.