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.

[Incognito]

Vader:

You continually take pot shots at ADM. Why?

They are one of your and your board's biggest milling wheat customers.

Is that how CWB employees treat all customers? Or just ones who don't share your philosophy?

Why don't you share with readers the graft that goes on at the Japanese Food Agency? Or brokerage kickbacks to other Asian customers.

Those in glass houses should not throw stones.

For the record, ADM owns 23.42% of Agricore.

[Vader]

Incognito,

You ask
"You continually take pot shots at ADM. Why?"

I am sorry if you are offended. I don't consider it pot shots. I simply state the truth. ADM is the second largest grain handler in the world with revenues of 40 billion dollars per year and their profits soared up this past year when farmers commodity prices tanked. Cargill is the largest with revenues of 60 billion. Bunge and Louis Dreyfus are third and fourth. Between them they control 73 percent of the world's grain trade which is up considerably over the last five years. The really bad news here is that most of those revenues come from processing and not grain handling. So if through their grain handling activity they can depress commodity prices they actually make more money. Now you might ask how they would depress grain prices. Let us say they simply focus on bringing more grain to market. That would simply be a good business decision. These four companies are very agressive around the world in all the grain producing countries sourcing grain, building infrastructure, supplying crop inputs and transportation services. These are all good business practices and completely ethical. The bottom line is they are able to put more product into a market with an inelastic supply and demand curve. As soon as there is an oversupply prices do not simply go down a little bit, they tank.


Then you say..

"They are one of your and your board's biggest milling wheat customers"

Certainly they are the biggest milling wheat customer in Canada because the have a virtual monopoly on milling wheat in Canada. If we give them a little more slack they might take over the remaining remnants of the industry and then be completely in control



"graft that goes on at the Japanese Food Agency? Or brokerage kickbacks to other Asian customers"

Incognito, you shouldn't hide in the bushes if you know of some criminal action. If you know something about this why don't you launch some sort of public investigation.

If this is true, who is the guilty party? If this is true then is it a standard practice in Asia. I do not understand Asian customs. If this is what the customer demands of all its business associates then I guess then ADM would also be engaged in this practice. After all it was ADM that was found guilty of price fixing to the tune of millions of dollars in the feed ingredient Lysine a few years ago, and didn't one of their exectives actually go to jail over it?

Yes, ADM owns 23.42% of Agricore, but controls it 100%. Will they buy Saskatchewan Wheat Pool now that they are up for grabs? If not SWP then who? In the game of mergers and acquisitions, he who hesitates is lost.

[dalek]

Ethanol COULD be good, but hasn't been done right yet as far as I can tell. The Ontario government put out some big incentives for ethanol construction, made a lot of noise about combining environmental support with support for ONTARIO farmers, then allowed the US to supply 60% of the corn for those plants through dumping. The byproducts from that US corn have knocked the snot out of the local feed grain markets (and the ethanol plants are looking for GOOD quality grain here, not feed grade).
Don't be surprised to see US grains coming north to feed western ethanol plants and even less feed grain markets, unless any incentives for construction are tied firmly to using local grain.

[Vader]

dalek,

What do you suppose the chances of the Husky Oil ethanol plant at Lloydminster using corn instead of wheat?

I haven't heard about any incentives from the Gov't for their plant. There is no leglislated ethanol blend required in Saskatchewan so no hidden subsidy there. Is there any direct government investment or tax relief for ethanol plants in Saskatchewan?

I was told that there would be no legislated ethanol blend until there was domestic production to avoid what you mention happened in Ontario.

I have also been concerned about the byproducts. Ethanol plants need to be planned in conjunction with a feed lot so that the distillers grain can be used onsite without the added expense of drying and shipping. The feed value of the byproduct compared to the raw grain is reduced by the amount of energy removed in the production of ethanol. That is a good thing since the production of ethanol reduced the amount of feed grain on the market whether it be wheat or corn.

Ultimately it will be an economic decision on that part of the ehtanol plant what grain they use as a feedstock. I hope someone is busy doing research on the science of wheat vs corn in ethanol production. Perhaps we need wheat varieties bred specifically for ethanol with the proper enzymes to break it down. Maybe the wheat needs to be preprocessed to remove some higher value components before distillation as they do at the plant in Red Deer, AB.

[charliep]

Welcome back Dalek. It is always good to get an Ontario perspective.

Just a question about your comments about corn imports. I take my memory (foggy at best) to maybe 8 - 10 years ago when Manitoba corn growers launched their countervail and anti dumping action against US. The action was successfull to prove injury on both these (situation might have changed today) but they were not able to prove injury to western Canada (barley and wheat couldn't be included in the case). If Ontario/Quebec had come on board (based on the size/importance of this crop), the case would have been successfull.

The argument I heard (maybe misinterpretting) is that the Ontario industry (including the Ontario corn growers) wanted the ability to import corn to support the value added/ethanol industry. Ontario farmers were happy to be on a US corn price plus transportation cost to move north to Canada.

Where Ontario farmers come down on this issue today?

I have to note a lot of the concern comes to the shift in currency value. An Ontario/Manitoba corn price with a US 60 to 65 cent loonie two years ago is much different than the price with an US 80 to 84 cent one today.