The Robust Reality Regarding 2021 Ethanol

It seems like an Ag now, but last year I visited the small country of the Maldives which lies in the Indian Ocean off the coast of Sri Lanka. It’s hard to imagine visiting such a place, but that’s exactly what some of us did in the pre COVID world. I got there inadvertently as a side trip to Bangladesh, but I very much look forward to seeing this country again, which has always been threatened by rising sea levels.

The Maldives is a speck on the Indian ocean. However, it is idyllic as a vacation spot for many people in Asia and Europe. However, when I was there it was very easy to see how threatened the country is. Most of it is just above sea level and it wouldn’t take much for that to change. I’ve thought about it a few times this past week as the Glasgow climate conference continues.

Last week I was preaching pragmatism and when it came to climate change so I’m hoping that I do get that opportunity. I’m also hoping that farmers will be able to contribute to the solution in the Maldives by what they’re doing on their farms. Carbon sequestration within our soil seems to be lost in the debate, but I would argue that we have done considerable good over the last decade by producing ethanol from corn. I’m sure some people reading this in the Maldives or in Montreal might lose their breakfast by me writing this, the old fuel versus food debate. Despite that, ethanol seems to be enjoying a renaissance and farmers are clearly benefiting.

It’s a very long story now. Go back to 2005 when the US Energy Act was put in place, and we had an incubation of a big ethanol move. At that time, it was still a theory that we could produce enough corn to satisfy ethanol demand which the new renewable fuel standard would require. We all know the story as corn production took off as well as prices eventually topping out at $8.49 in 2012. We all love growing corn and delivering it to ethanol plants, where their end product is blended with gasoline which makes for a cleaner burning fuel. Everybody wins, at least that’s what we thought at the time.

The reality of the situation was everybody liked growing corn at $8 a bushel and since that time ethanol has been buffeted by both economic and political forces which are not so enamored with the product. However, as we have arrived here in 2021 with such uneven unusual economic conditions, we could see approximately 5.5 billion bushels of corn will go to ethanol this year. That’s incredibly bullish for ethanol especially with many economic and political forces against it. In fact, USDA estimates show that one bushel of corn in Illinois is now creating over $8 of ethanol value, not including the dry distillers grain. Simply put, ethanol margins are very strong.

The situation in Ontario and Quebec is similar. Of course, our ethanol producers compete with American ethanol coming into the provinces and Canadian ethanol demand is strong, so strong we are the biggest importer of ethanol from the United States. It means that there is cleaner burning fuel here versus what there used to be. If you don’t believe the food versus fuel debate farmers are contributing so much more to the environmental wellbeing of this planet.

The antithesis argument to that is the food versus fuel debate. In other words, people argue that we’re burning too much greenhouse gas to produce a bushel of corn which in turn goes into ethanol which is blended with fossil fuels. at the present time in Canada the political environment for ethanol couldn’t be worse. Our federal government does not want any expansion of fossil fuels and the present provincial government in Ontario has never supported Ontario ethanol. However, the infrastructure is here and for the time being the outlook is very good. Ontario and Quebec corn producers should continue to benefit for the near future.

Having said that, you know there are problems with that argument. You know that the political assumptions have all changed on ethanol as a clean burning fuel in the climate sensitive politics of 2021. Burning any type of fossil fuel in 2021 at least in Canada even with an ethanol blend is considered a problem. I’ll let you make your own assumptions about the rest of the story.

Soon, I hope to be joining the rest of you harvesting corn across the Great North American corn belt. Keep in mind, at least in Ontario about a third of the corn going into your combine is processed into ethanol and burned as fuel. Also keep in mind that this demand at the present time is rising and looks very good. It’s also happening at the time when the world is crying out for energy and can’t get enough as prices rise.

The hard part will come maybe in the post Covid world, when the political rhetoric of Glasgow turns into actual policy around the world. As it is, in the fall of 2021, that path does not look straightforward. There is still a lot of game in the ethanol economy. Ditto for other biofuels. I’m sure we’ll all have the opportunity to visit the Maldives someday.