Ethanol Good - Ethanol Bad?

[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.

[charliep]

Not very clear in my second paragraph. The jist is the case was successfull in demonstrating corn was subsidized using both the criteria of countervail (subsizing to to export markets) and anti dumping (selling below cost). It was dismissed because the Manitoba could not prove sufficient financial damage to the western Canadian corn industry (too small a crop in the prairies).

[dalek]

Charlie it depends if you're talking about Ontario corn GROWERS or the Ontario Corn Producers Marketing Board and it's directors. I think the growers would probably be 80 % in favour of going after the US but the board continues to be against it. The difference, as far as I can see, is that the average Ontario grower has had little of their own (as opposed to money taken from them by the OCPA) money invested in ethanol, while the Board and it's directors have invested significantly in ethanol and unfortunately many growers think the board is more interested in protecting it's own investments than protecting the ability of growers to stay in business. We have an ethanol mandate here, unfortunately it looks like it will be fulfilled with Brazilian ethanol or with ethanol made in Ontario from American or Quebec corn.

[dalek]

Vader the advantage western plants probably have is that they can't be built on the great lakes. Our local bulk corn buyer tells me it's cheaper for her to transport a ton of corn from Ohio thanks to Uncle Sam and the US Army Corps of Engineers, than it is to bring it by truck from 40 km away.

[Vader]

dalek,

Where can I find more information about the science and economics of ethanol production from wheat vs. corn. Up until a few weeks ago I didn't think that wheat could compete but now I am not so sure.

[charliep]

Thanks Dalek

This debate goes on in Alberta as well with the discussion about security of supply for users versus market opportunities for grain growers in the face of subsidized competition.

Vader - I suspect that US corn (except maybe in drought years like 2002) will never be a factor in the Lloydminster ethanol plant. Too far away/expensive to bring in US corn consistently. There is also lots of local grain close by.

The more important factor will be implications for the local feed market (realized distillers grains will be fed) - this is were the competition will come from and where the impact will be. Similarly, there will be the interaction of the CWB payment structure/how spreads are determined within the wheat ex durum pool and the mid class classes (CPS)/3CWRS supplied the plant. Finally, the impact that will have to be looked is the creation of another opportunities ability to stop the shift of acres in N.E. Alberta and Northern Saskatchewan to other more profitable crops (peas, canola, livestock, etc.). A partial answer for Lloydminster may actually come from feedstock feed crops like triticale.