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Veteran Advisor

Ethanol in the firing line

Ethanol faced two votes in Washington this week. The industry cleared a first vote to end the ethanol blender's credit in July. But, the second vote, by the Senate today, did pass. Here is the response from the (not so worried) industry:

 

Responding to the Senate vote to end the federal tax incentive for the use of domestic ethanol, known as VEETC, the Renewable Fuels Association issued the following statement:

"We are disappointed in the shortsightedness of this vote, particularly as this same body voted less than one month ago to preserve billions of dollars in taxpayer handouts to the oil industry. As the underlying bill to which this amendment is attached is unlikely to make it to the president's desk, this vote was a freebie with no real consequences. With this theater now in the past, the ethanol industry stands ready to work with the Senate, House, and the Obama Administration to enact thoughtful policies that responsibly address fiscal concerns while moving American ethanol production forward. America needs an energy agenda that embraces the energy technologies of the future, not the energy politics of the past. Our industry is ready to work in good faith to pass legislation like that proposed by Senators Thune and Klobuchar that achieves immediate budget savings, pays down the federal debt by $1 billion, and continues the expansion and evolution of America's ethanol industry."

 

Mike

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Veteran Advisor

Re: Ethanol in the firing line

A Washington insider offered up how this vote might affect the corn market.

The source says, "I would think it would be somewhat negative. When I asked a leading ISU authority about this last year, they expected something like this would be similar to finding 300 million extra bushels of corn in a grain stocks report. The key to all this is whether Coburn and Feinstein have allies in the House who want to do the same thing.
The Senate action won’t result in a bill being passed by Congress, since the House has to initiate tax legislation. You’d think they would, since the House might be even friendlier to petroleum interests.
So the effect of the vote at CBOT depends on how the traders view the political odds.
It’s worth noting that several gasoline retailer groups don’t want the subsidy to end before December 31 because they’ve got contracts signed for ethanol that might be affected."

 

Mike

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Re: Ethanol in the firing line

Sell the rumor, buy the fact. 

 

My comments...

 

There are many of us that are in the “know” of the ethanol/corn/energy industry that know the blenders credit and import tariff are a non-issue in today’s market place.  Ethanol is running about 30 cents per gallon below gasoline at most major markets.  Refiners make approximately 50 cents per gallon by blending ethanol because the high octane nature of ethanol allows for substantially more efficient “cracking” of oil into its various finished products (gasoline, heating oil, naptha, etc.).  Considering these factors, ethanol is about 80 cents below finished gasoline in today’s market.  The blender’s credit makes it nearly $1.30/gallon below finished gasoline.  Big Oil is going to use ethanol today as blending ethanol is too profitable today and for the foreseeable future.  Additionally, the mandate for the use of ethanol ensures nearly 10% of the US gasoline pool is ethanol.  The blender’s credit is irrelevant today.

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Contributor

Re: Ethanol in the firing line

When I heard this news I was absolutely estatic!  Corn ethanol is a terrible industry that is bad for America.  Corn ethanol producers make money when grain prices are low and oil is high - gee, that sounds like a great combination for America.  The corn ethanol industry won't stop pushing their inferior fuel until every person and animal in the country is starved to death.  No environmental benefit whatsoever from corn ethanol.  It is totally immoral to burn up our food to fill up gas tanks.  The average person is fed up and today was a major victory for most everyone in America, except the landed gentry multimillionaire farmers in Iowa. 

 

What am I hoping for next?  I would love to see suger prices fall and us be able to import some low cost Brazilian sugar cane based ethanol, which is approx 17x more efficient than corn ethanol.  Also, I would love to see oil drop to 50 dollar per barrel.  Hopefully the combination will drive corn ethnaol producers bankrupt in huge numbers.  They absolutely deserve it after trying to burn up our nations food supply and willfully misleading the public.

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Senior Contributor

Re: Ethanol in the firing line

Andrew-

 

Im reading this again as from the other day and I still dont understand it- it appears to me that you are saying regular gasoline without 10% ethanol would be 50 cents more expensive? that seems unlikely

 

but the pressing point is again- if ethanol blending is so profitable for the oil companies, why does the federal government need to mandate its use, and put a tax credit in to boot?

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Efficiency of operations

Too bad i forgot most of my organic chemistry...i'll try and make it anecdotal.  To make 87 octane gasoline, refineries have to run harder and less efficient so it costs more to make straight gasoline.  To make sub-octane gasoline to be blended with ethanol, refineries do not have to run as hard.  This is said to be worth at least 50 cents per gallon of blended ethanol. 

 

Is your car more efficient at 55 mph or 85 mph?  Most likely, 55 mph.  Refineries are no different. 

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Veteran Advisor

Re: Ethanol in the firing line

Now Ethanol Watcher I may be a little green in this business compared to some but as of late how many times have we seen high gas prices and cheap grain? How much of every bushel of corn used for ethanol gets fed back to livestock? How many jobs are created in THIS country by biofuels? How much money does big oil get from uncle Sam just to give back to terrorist harboring countries? How often do you see grain farmers go all the way to Washington to control what seed, chemical or fuel companies do with there product? Try to answer these questions without looking at some phony bologna tree hugging site over the internet.... Maybe numbers done by a land grant university. In the mean time all of us "multimillion" dollar grain farmers will work on trying to make a steady flow of Brazilian sugar cane ethanol..... That might be a hard thing to do since sugar cane is a perennial plant and cannot be produced every year like corn.... But wait..... Its "immoral" to burn food in our gas tanks right?

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Veteran Contributor

Re: Ethanol in the firing line

Corn ethanol is a fantastic industry and great for America.  Corn ethanol producers make money because too often grain prices are low and too often oil is high.  Keeping a lid on gas prices while using a commodity we have in abundance is a great combination for America.  Big oil won't stop pushing their addictive product even after they pollute the Gulf of Mexico and even though our oil money is funneled to terrorists and others who seek to destroy America, and even thoug our country is going broke trying to secure the world's oil supplies.  Noone ever starved to death because of ethanol's use of No. 2 Yellow Corn, however, the price of oil and fossil fuels has contributed to poverty and starvation around the world.  People do not eat No. 2 Yellow Corn--they feed it to livestock.   Much as I like to eat it, I do not have a moral right to eat meat and neither does anyone else. 

 

Ethanol watcher--I love how you condemn corn ethanol as "burning up our nation's food supply" but then, at the same time, you tout sugar cane based ethanol.  I thought we couldn't burn up people's food because it is a moral issue?  How quickly your morals disappear in moving from one paragraph to another.   

 

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Veteran Advisor

Re: Ethanol in the firing line

It's great to see the healthy discussion on a very hot ethanol topic.  Here is a great read from Dan Looker, Successful Farming's Business Editor, on the latest action from Congress.

 

The link:    http://www.agriculture.com/news/policy/moving-toward-less-ag-spending_4-ar17199

 

 

 

Mike

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Senior Advisor

Re: Ethanol in the firing line

I'm a pilot.  Pilots are not a very big piece of the population, but as a group they are generally rabidly anti-ethanol.  Most have very little factual basis for their dislike.  I've heard that boaters and some others have similar feelings.  It is amazing to me how people let their emotions run rampant on a topic like this.  It makes the term "populism" much more alive and vibrant to see it in action.  For example, Minnesota and Penssylvania mandate 10% ethanol in most gas.  Iowa does not.  In addition, some fuel distributors prefer to blend ethanol at various places in the distribution chain.  In other words, whether you have access to non-ethanol gasoline is a local problem.  Many people who rail against ethanol see it as a nationl or federal issue and ignore that fact that they can influence it right at home if they prefer.  They'd rather rant.

 

Another thing that interests me is the notion that if we use less corn for ethanol, the price of corn will go down.  To some extent that is right, but those people are ignofring the fact that farmers like to make money.  Corn belt farmers may indeed be locked into corn and soybeans, although even they can change, but fringe corn farmers will make decisions based on the relative profitability of corn versus wheat, cotton, rice, sunflower, soybeans, hay, pasture, CRP and other enterprises.  In other words, if corn demand goes down, so will corn supply.  That will bring corn prices back up at least somewhat..

 

I don't remember when I've seen a topic in which so much emotion and ignorance is displayed (except maybe nuclear energy). 

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