Ethanol Good - Ethanol Bad?

[Vader]

COMMENTARY: NEW COALITION
FORMS TO PUSH ETHANOL USE

NICHOLAS E. HOLLIS, AGRIBUSINESS COUNCIL: Ethanol proponents have cranked up a new front group/coalition called the Energy Future Coalition --- and
demanded the Administration and Congress support more ethanol as a way to "substantially reduce" the U.S. dependence on foreign energy.

Erstwhile ethanol water-carriers such as C. Boyden Gray- a prominent figure in the first Bush Administration and R. James Woolsey- former CIA director in the first Clinton Administration (who later endorsed Republican candidate Bob Dole in 1996- after falling out with Clinton) are the lead signers of a petition aimed at generating
new subsidies for alternative fuel vehicles. Guess which alternative fuels these cars would be geared to use?

(Hint: For reality check look at Minnesota's sad experience pushing "flex vehicles" with E85 --- 85% ethanol blended with gasoline --- Minneapolis Star Tribune editorial --- January 30, 2005)

Although the word "Ethanol" does not appear once in today's Washington Post story by Greg Schneider --- "An Unlikely Meeting of the Minds: For Very Different Reasons, Groups Agree on Gas Alternatives" --- a cursory check of the
relevant websites reveals a strong pre-disposition towards ethanol and motor vehicles designed to operate on high percentage ethanol blends.

Nor does ADM, or its worn mouthpiece groups like the corn growers or the various renewable energy association groups it has founded over the years --- appear anywhere in the sponsor listings. But the modus operandi --- is eerily familiar --- the "coalition" which is also a tax exempt non-profit (so it won't have to reveal its contributors in near real time to inquiring minds), the "cattle drive" approach with ag groups rallying in Austin last year to push the agenda on foundations --- and a few core groups/individuals fiercely supportive of ethanol --- but quite covertly buried within the new coalition --- all point in the same direction for the source of the latest beltway shakedown proposal for ethanol --- Decatur. Dwayne is calling in old markers.

If it were not for the time-tested demagoguery about reducing our dependence on foreign sources of energy --- and the gratuitous insertion of false environmental claims --- the same lines used to sell ethanol subsidies back in the Carter
Administration during the last real energy crisis --- maybe we could be more sympathetic.

But with billions of tax dollars already pumped into ADM via the ethanol --- and other government subsidies --- this corrupting ,unsustainable process now threatens not only the country's agro-food system integrity --- it endangers our Nation's democratic institutions. Our farmers are being pauperized and reduced to serfdom --- and only ADM, and a handful of others seem to benefit.

The Illinois-based company's rapid growth over the last quarter of the twentieth century -despite being nailed as the center-pivot of the largest price-fixing cartel in agricultural history in the mid 1990s (see note below) has played out before the ag community with grotesque consequences we are only now beginning to comprehend. It resembles a steroid driven nightmare of dirty tricks and campaign contributions insulating the cheating and further corruption from any real accountability.

Say what you will about lawyers, and revolving doors in Washington (both Gray and Woolsey have worked these ropes, and received handsome speaking fees from ADM friendly and/or financed groups) --- "the fix" appears to be in, and in deep.

Could increased ethanol use provide "substantial reduction" in our dependency upon foreign energy? Not a chance. Even if we planted the entire country with corn and burned every ear -we would fall way short of any serious percentage reduction. Don't forget it takes more energy to produce/process/transport the ethanol than it delivers.

So we'd have a greater energy deficit with ethanol. On the other hand --- with increased ethanol subsidies implicit in that proposition, we'd practically be handing the U.S. Treasury over to ADM. It would be easier --- but obviously not politically correct- just to give ADM the government.

Washington insiders now whisper that C. Boyden Gray will soon be nominated to be the U.S. Ambassador to the European Union. If this happens someone in the Senate Foreign Relations Committee should quiz him at his confirmation hearings
about potential conflicts with ethanol. After all, ADM is working hard these days to push ethanol in Europe --- utilizing a variation of the "scare theme" on the energy dependent Continentals. Could this be part of Gray's proposed portfolio?

"Res ipsa loquitur" -- The things speaks for itself [March 31, 2005 ]

* ADM paid a fine of $100 million with shareholder funds --- acknowledging guilt --- but was able to hoodwink a federal judge and maintain its government contract business --- primarily with USDA --- by using two separate legal teams which quietly
negotiated (manipulated?) DOJ and USDA --- while maintaining 'deniability' that either had knowledge of the other's actions. In the end a hapless DOJ assistant AG/Antitrust (J. Klein) was caught in this contradiction during a public hearing with
farmers in Minneapolis (April 1999). See James Lieber Rats in the Grain (2000) p. 318


Also note that ADM is the same company that controls a 25% interest in Agricore United.

[chipper]

Vader, I am presuming that you are not a supporter of ethanol at this time but I am interested in whether or no you see ethatnol as a user of all the feed grain surplus that is haunting the western farmer at this time. Is ist possible that this would create an alternative market for some of oour lower quality grains and thus by way of competion bring up pricing levels to compete with the values given to us by the CWB options at this time. If these plants remain in the controlling interests of grassroots would this not be better

[Vader]

I am in favor of ethanol plants and bio-diesel but with some provisos.

As you say it would take the glut of low quality grain off the market. Right now a farmer is realizing under $2.00 for feed wheat when it is shipped overseas. The cost of production is around $5.00. That means that we are subsidizing some foreign nation to the tune of $3.00 per bushel for every bushel we ship out of here. The loss in equity is coming out of your farm.

Husky Oil is building an ethanol plant at Lloydminster. I don't know if they have any side deals with the government but I would assume that they are intending to make a profit.

The cost of a large scale ethanol plant is about $50 Million. That is roughly equivalent to the admin costs of the CWB. So for about 10 cents per bushel farmer in western Canada could invest in an ethanol plant each year.

Energy demand is a bottomless pit. As oil prices go higher ethanol prices will be directly tied to oil. If you are growing grain for ethanol production then the value of that grain should also be tied directly to the price of oil.

Our challenge is to grow the grain efficiently so that we are net producers of energy. That means getting rid of KVD and perhaps moving away from the CGC grading system, so we can have higher yielding crops. The job of the grain crop is to harvest the energy of the sun. If we do it right that should be a net increase in energy.

Lets get moving on this and do it so that farmers are the beneficiary instead of Archer Daniels Midland. The are already lining their pockets in the US. Let's not let that happen here.

Ene

[chipper]

Where do you see the CWB in the senario?

[Vader]

Under the current legislation the CWB has not part.

If the CWB could own real estate then I could see this as a subsidiary. Farmers would be offered the opportunity to participate through a deduction from grain sales which would give them share ownership. The governance structure would be separate from the CWB.

Other such investments could include flour milling in customer countries. The Australian Wheat Board has already made a joint venture investment in flour milling in China. ADM has made joint venture investment in oilseed crushing in China. Through these joint ventures they are locking up market share. If this goes to extremes then Canada could be shut out of some markets.

The US has formed a bilateral trade agreement with Morocco. Morocco is a big customer for Durum Wheat for Canada and up until now we have had 100% of that market. The US will now have a preferential tariff for Durum in Morocco and Canada will lose market share there.

The times they are a changin'.

[charliep]

Some comments.

Many US plants have elements of rural development - bringing activities/jobs to communities.

Investment can come in many forms. Community investments (new generation coops), partnerships (similar to what is seen with some of the inland terminals) or attracting a investor (could be a big or small company).

Farmers tell me it they can grow a percentage of the crops for specific markets but they still need increase access to more commodity based markets. It is nice to have a crop that can be seeded in late May/early June that a farmer wouldn't care about quality/grade - only yield (barley is likely there today in many rotations).

The bio fuel crop may not be a grain. It could be straw, turnips, poplar tress, whatever.

[charliep]

Perhaps in this discussion we need think about by products as well.

Ethanol by product is dried/wet distillers grains. Obviously, Poundmaker feedlot at Lanigan, SK is an example. There may be other opportunities like this. More research is needed in this area.

Some of these processes to bio fuels may create other higher valued opportunities. I will seek help from others that were at a recent (my memory is getting worst with age). My recollection is discussion about using high erusic acid ****seed varieties in the production of bio pesticides. Oil goes into the bio diesel market. Glucosinolates are separated from the meal yielding this high valued product and a normal meal (comparable canola). Hopefully I have my facts right. The big thing is there will be spinoffs from research and development into the higher valued products.

Finally, I don't think the direction is really energy replacement but rather using enthanol/bio as a fuel additive.

[Vader]

Charlie,

I came across a group that is working with a very fast growing bush type willow tree. Their plan is to fractionate the wood pulp (perhaps using some type of enzyme similar to the Iogen process) into pulp, for paper, cellulose, for ethanol, and the remaining lignins for burning.

I think that this is a very progressive idea. I was also told that chokecherries had a high oil content that could be used for bio-diesel.

Can you see field of chokecherries where the fruit would be harvested mechanically and process to remove the seeds. The fruit would have a food market. The seeds would be crushed for the oil and perhaps converted to bio-diesel. Every so many years the entire plantation would be cut down and chopped up for feedstock in the same manner as mentioned above for pulp, cellulose and lignins. Perhaps not as fast growing as willows but perhaps more diverse for western Canada.

Anything that takes acres out grain production will be positive for commodity prices.

[charliep]

Just a caution that shifting acres in Canada will not necessarily translate into higher prices. As an example, decreasing Canadian wheat by 1 mln acres would not increase prices - static demand, emerging new exporters and higher ocean freight costs are the killers.

Research/new products are a giant step forward to create new opportunities. That will give farmers more choices of crops (including things you mention) that fit their situation and business goals. The next step will how Canada develops the infra structure. Finally hopefully nobody oversells these things as being the panacea/silver bullet. They will be among the choices farmers make (including investment up the value chain).

[Vader]

If this were strictly a Canadian phenomenon I would agree. But look at the US corn crop. Roughly 1/8 of the corn grown in the US is now being used for ethanol, with dozens more plants either under construction or being designed. The bio-diesel movement is just picking up steam in the US and in Brazil. Brazil is also going hard on ethanol from sugar. Germany is already big into bio-diesel.

Perhaps it is poor economics that must be subsidized to work today. Perhaps the net energy production is negative. I learned a new term the other day. Energy return on energy investment EROEI. I would like to believe that we have the science to make the EROEI positive and that farmers can actually be net energy producers. Nevertheless this is starting to look more and more like the bandwagon we should be jumping on.