Ethanol Strategy... do we have one?

[TOM4CWB]

President Bush announced, in the recent State of the Union Address, a $1.2 billion "Hydrogen Fuel Initiative" to support research and commercialization of fuel cells for automobiles and stationary power generation.

President Bush stated: "And there's a lot of advantages that I want to explain to the American people about why this initiative makes sense. First, the hydrogen can be produced from domestic sources -- initially, natural gas; eventually, biomass, ethanol, clean coal, or nuclear energy. That's important. If you can produce something yourself, it means you're less dependent upon somebody else to produce it."

"President Bush is to be commended for not only discussing hydrogen fuel cells, but the question of where the hydrogen will come from," said Bob Dinneen, president of the US based Renewable Fuels Association (RFA).

Dinneen commented, "In the search for hydrogen to power these new fuel cells, only ethanol combines the ability to utilize the existing fuel distribution infrastructure with the safety and environmentally-friendly attributes that consumers are increasingly demanding. And as a domestic fuel, ethanol helps provide energy security. Clearly, fuel cells represent an important new market for renewable ethanol."

The RFA indicates that Ethanol can be stored and dispensed in the current fueling systems. Because Ethanol generates fewer greenhouse gas-forming emissions than conventional fuels, tests have demonstrated that, ethanol is more efficient to reform than gasoline to provide hydrogen for fuel cells.

So Charlie and Lee;

When are Alberta and Canada going to wake up and smell the coffee?

Exactly what is our Ethanol Strategy?

THE Canadian Gov. has made a big deal about Kyoto... as has Alberta.

Doesn't the US action show they are more serious about Kyoto, than either Canada or Alberta?

[charliep]

A couple of quick comments.

1) It may not be high profile stuff that hits the media but AAFRD is looking/working with industry on ethanol initiatives as a part of Alberta agricultural growth strategy.

2) Whatever we do, the ethanol industry has to be economically viable. I am always curious about(should check more) the energy balance sheet to produce ethanol - particularly from grains. Some of the biomass crops you mentioned in a previous thread are a better way to go.

3) US has a different set of interests in driving ethanol than we do. They are net energy importers. War/its aftermath will have a major impact on their energy security.

4) What crops would be used to general ethanol? If it was grain (likely wheat), does western Canada/Alberta have enough production capacity to satisfy this industry? Realizing that price does a lot to alternative cropping decisions, our region is currently struggling to produce enough barley to feed our livestock industry.

[TOM4CWB]

Charlie;

Speaking of alternative cropping...

I see CBOT Mar 04 corn trading at $2.50/t while Mar 03 is at $2.39/t.

Meanwhile you folks at AAFRD have predicted(Spring 03 Crop Insurance) that our farm gate barley price will slide from $170/t today to $130/t next fall... I don't get it!

AS you have correctly pointed out, we have a feed grain deficit in Alberta, and now we have become corn reliant for our livestock industry...

When US corn Mar. 04 futures prices are at a premium to nearby months... why aren't CDN prices relative?

SOmething is really wrong here!

And is it little wonder why grain producers refuse to grow barley and feed wheat for feeding?

THe new AB Crop Insurance program magnifies this distortion even further...

THe CWB won big time again... distorting production away from feed grains, flax, pulses, canola, and towards export CWB wheat!

The revenue protection only starts after the 10% deductable, but the CWB export wheats start much higher than all the other crops... the results are obvious... a bird in the hand is worth two in the bush... GROW EXPORT WHEAT...

IMPORT CORN.

WHat a deal... Livestock producers and feeders will be going through the roof!

You know, farmer leaders should be consulted in setting crop insurance prices... especially now with the new pricing options... Distortions just might be reduced!

Greenhouse gas production could be reduced as well... instead...export this, import that, sure should keep the railroads and truckers happy!

[charliep]

As part of the process (not the only one), the reason barley prices came down is the assumption of a larger crop in 2003 and feed barley returning to a more normal relationship with US corn (i.e. not priced US mid west corn plus freight). If drought kicks in (or some other factor) that pushes prices higher (a reasonable possibility) and prices increase above 10 %, the variable price benefit will kick in for insurance claims and the market will pay the higher price on production.

A comment on the new programs is they are not meant to replace normal risk management and market outlook strategies you use for your business. October 2003 western barley futures have been running about $160/t. Assuming a $20/t basis, these provides a hedging opportunity of around $140/t or $3/bu. New crop insurance programs should not prevent locking this price in or growing feed barley for that matter. The outlook for both malt and feed barley remains good into the new crop year and this should be the driving factor in your decisions.

I would welcome farmers participation in the price forecasting group - the objective of the process is to move toward a more visible pricing process for crop insurance purpuses. Are AFSC/AAFRD 100 % there? No. We have begun the journey. I look forward to feedback.

[TOM4CWB]

Charlie;

As I have said before... the definition of insanity... is doing the same thing over and over... but expecting a different result!

Year after year, AAFC and AAFRD do the same thing... low ball feed grains... don't provide high quality adjustments for Rye, Triticale, Barley, yet the risk reward ratio coverage under crop insurance that is created for wheat is so much better... yet year after year your forcasts have been so far out... we end up importing Corn.

How can I hedge Barley at under $3.00/bu... when if it remains dry... I will owe someone $4.00/bu to buy this barley back to fill my hedge...

I thought the idea of the new Crop Insurance revenue risk management tools was to cover this risk, wasn't it?

Yet the whole Crop Insurance program is tilted away from growing feed grains...

Charlie I believe you told me the Revenue Crop insurance cost of production # on Barley is about $2.25/bu and $3.95 on Wheat... These numbers are skewed heavily to a wheat # that is much more profitable on my farm... what about other farmers?

If the risk reward on Select Barley was closer to US spreads... there would be good reason for more people to grow barley... but the CWB seems to think our Select barley shouldn't be worth more than feed barley... so many farmers get ripped off growing select barley every step of the way...

So Charlie... many just give up and won't grow feed grains any more.

Give a fair and reasonable price for barley coverage in the spring... then maybe we might consider doing all the extra work created to grow a low value high volume crop.

Otherwise... I guess we will need to continue importing fusarium infested corn, wheat, and barley into Alberta...

Now Charlie...

How exactly do we farmers get involved in the process that sets these Crop Insurance values in the first place?

[charliep]

If you don't think AFSC is making some significant changes to crop, I might suggest you read and understand the new crop insurance alternatives. The variable price benefit is a standard feature of the crop insurance program - not an option. The increase in barley prices ($3/bu in the spring forecast and $4/bu in the fall based on a $45/t or $1/bu increase in futures) you suggest would generate higher coverage on a production loss. There is basis risk in this process and if you can suggest how to eliminate this, you will have 100 % of my attention.

With regards to the insurable grades, that is up to farm groups to argue with crop insurance. You had better be prepared to make a strong case including where price data will come from. Also be carefull what you ask for - you might get it. A program which jams prices for smaller crops to high will encourage higher production above market needs - a guarantee of lower prices.

With regards to the process that goes into setting crop insurance values for all programs (I assume you don't want involve in actual setting of prices), I suggest you contact crop insurance directly. This is particularly the case on the revenue insurance values.

[charliep]

The price in the revenue insurance program for barley is $2.39/bu (not $2.25/bu) versus $3.95/bu for low protein spring wheat (2CWRS 11.5) and $3.67/bu for 2CPS wheat.

[TOM4CWB]

Charlie;

I am suggesting that farmers be directly involved in setting prices... a vote at the table would be significant and important to adding to the dependability and reliability of Crop Insurance for Alberta.

Case in Point;

When I insure through regular insurance... they ask me what value I am insuring... If it is reasonable, and I am willing to pay the premium, I am insured.

So Charlie I have a pivital role to play in any other insurance I buy... why not in Crop Insurance?

The cost of production issue(High enough coverage to pay costs of growing a crop) is not being resolved at all, by the looks of what we have discovered... we obviously get mired down in a war over what prices might or might not be next fall.

The price next fall is not the issue, the issue is do I have reasonable insurance avaliable to cover the risk of growing each crop on my farm.

If proxy crops are needed... then we should work through these coverage issues to resolve the crop insurance production distortions against the feed grains.... so we do grow products that we can consume and value added at home.

Then Ethanol feed stock, and livestock feed grains will be grown to fill a market... once a market is avaliable to be serviced...

So If we grow livestock/ethanol feedstocks, we should be getting carbon credits on top of our regular return... cause we do not require the export transportation services that burn large amounts of carbon based fuels...

If Kyoto means anything... and since we have signed on it must, then how do we respect our world civilisation's request that we reduce fuel consumption, and use more renewable efficeint forms of feeding and fueling our world?

SHouldn't this an part of our Crop Insurance strategy?

[charliep]

I don't have any problem as long as the process is visible, understood, auditable (taxpayers money is involved), follows insurance principles(coverage reflects insurable interest and the true value of the crop) and premiums reflect the risk involved/likelihood of payout.

Maybe what you are saying we need to move away from the traditional crop insurance model of everything based on price times yield to something which allows flexibility in coverage with the cost side being one consideration?

[ianben]

UK/EU strategy seems confused also. Lots of talk keeping voters happy but little positive action.

Tax concessions on bio-fuel but just short of viable limit.

A tax neutral idea is ignored ie increase fossil fuel tax and add a percentage bi-fuel to maintain same at pumps. Sounds good to me but not taken up yet.

Personnally I favor the use of food crops in the production of this fuel as it would ensure a sufficient supply of food for eating and a market for surplus poor quality we will enevitably produce from time to time.

Perhaps the audit on these ideas should include possible savings on suport/subsidies farmers would need if implemented and worked in providing a base price for commodities.

High volume fibre crops would have just one market and a local one at that.

Willow has been promoted over here and thousands of acres are in the ground for harvesting after five years. The company who where supposed to build the generating plant now say it is not viable and the whole thing is in the air.

Not a nice position to be in!!!

[ianben]

Charliep: Over a period of 10 years how much taxpayer money has been used to prop. up Alberta Crop Insurance pay outs, over an above farmer premiums.

We always talk about taxpayer support but I never ever hear how much it is from year to year other than I heard last year we had a 400 million dollar surplus in the fund in Alberta. Do we average a high support from year to year.

[TOM4CWB]

Kernel;

Farmers fund about 40% of the cost with the feds and province picking up the rest...

2002 was the first year in recent history that the reserve funds were tapped out... and gov reinsurance funds had to be accessed to make payments owing on all Liabilities for 2002.

For a number of years interest income from the C.I. reserve was credited to the provincial consolidated revenue fund... with some recent years having C.I. premiums reduced because of interest revenue.

Kernel I was reading in the JD furrow about burning grain... $1.00/4L of propane is worth 5.00/bu corn...

Shouldn't we be able to do better than we are... just burning our grain?

And maybe... we could produce organic P and K fertiliser from the ashes left over...

It would certainly bypass the CWB!

[ianben]

Tom
You are beginning to sound like me. I rabbit on how we should know the value our commodities have as energy source.

I sometimes struggle to see how free exports of your wheat to US will improve wheat prices for us all. After all they are hardly short of wheat are they?

But energy that is different. Some people claim Iraq is all about oil supplies to US and not weapons of mass destruction. N Korea?

Your energy hungry neighbour will take your oil and gas and pay well for a product which flows at little cost trough pipelines and across borders with ease.Perhaps a fact of increasing importance with new rules and regulations about to be implemented.

Subsidise corn/wheat burning boilers install then along side existing heating systems giving users option to switch when wheat prices are competative with fossil fuel.

Go for a dual market food and energy instead of CWB and freedom.

If I get to visit Edmonton again I would love to find the West Edmonton mall famous for being not just the largest shopping centre in the world but the first to be heated by wheat.

Wheat supplied from local farmer Tom4CWB

With the drive and determination you have Tom I believe you could make it happen.

[TOM4CWB]

Ianben;

I have shipped to the US... simply because the marketing system there gives fair value...

However... if the CWB were doing it's job even close to as well as the competitive US system... we would not need to ship south... because our Canadian grain handling system from Alberta to west coast Vancouver or Prince Rupert... has a major competitive advantage in lower cost than shipping costs in the eastern PNW states.

There would be no doubt that burning #1CWRS wheat would be a crime (to me morally)... but high yeilding biomass crops would obviously be more efficient for producing heat and power... and could be developed to fill an energy market.

Obviously Germany is at least 10 years ahead of us... and you folks are about 5 years... we have much catching up to do!

The CWB must still be fixed... and since fixing it is my job... you know the rest!

[TOM4CWB]

Tom thanks for the answer but its not quite what I wanted to find out. I wanted to see some numbers so I could compare to what is being paid out in other add hock programs. And would the better crop ins. save the governments money.