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John's World

Friday, June 08, 2007

Any minute now...

A breathless announcement of a cellulosic ethanol breakthrough.

At a Brazilian ethanol conference June 4-5, Brazilian government-funded researchers said they have perfected a method of producing cellulosic ethanol that drastically reduces the cost of processing. At this point, the assertion -- and many other similarly optimistic claims made at the conference -- is unconfirmed. But should it prove true, the world could well be peeking over the horizon at a massive geopolitical, not to mention economic, shift. [More]

As many of you know, I consider cellulosic ethanol the cold fusion of agriculture - mostly because the energy density of the feedstock is so low, and transporting that much stuff negates the energy yield.

More tricky is the problem of the ethanol production itself. Cellulosic biomass is bulky and materially complex, unfit for the same methods of ethanol extraction used with corn. In order to even get the stuff into manageable form, processors must soak it in a pre-treatment bath, followed by an acidic or enzymatic digestion that splits it into simple sugars. [More]

Perhaps cellulosic ethanol will become a major part of energy plans. But think about the ramifications if we can sell crop residue.

The ethanol boom will look like a cheap date.

[via Andrew Sullivan]

Labels: biofuel, energy, ethanol, technology

¶ 6:50 PM 0 comments

Wednesday, June 06, 2007

Go figure...

The livestock industry asked some economists to estimate the effects of letting ethanol tax credits and tariffs expire in 2008. They seem to think it would be a good idea. So, equations were concatenated, models lovingly constructed, and serious hard-core economicking was done.

In the end, the cattle and pig folks perhaps didn't get the answer they anticipated.

An excellent summary is here at Farmgate. But lightly skipped over in the report and the study paper itself was this little gem.

Livestock producers pay lower feed costs, but their inclination to raise output in response leads to falling output prices as quantities move along an inelastic demand. [Full report]

Run that around in your mind for a while.

First lesson: it's your own fault. You silly producers and your "inclinations".

Second lesson: Lower feed costs are actually bad for livestock producers, because when feed costs go down, producers put more cattle on feed and farrow more pigs. With demand inelasticity, livestock income then drops as more meat lowers the price.

Say what??

Reading this backwards, can we assume the new higher prices for corn are raising profits in the livestock sector? Those cowboys and hog producers should be rolling in the profits when corn hits $6!

I will be looking forward to some cattle economist reaction to this strange conclusion. My instinctive response is meat production expansion is more a function of higher sales prices rather than lower input prices. After all we had $1.80 corn and expansion livestock numbers did not explode.

[Update: As I was driving to South Bend (3 hrs 9 min best time) I had one of those "poster-regret" moments. The report shows "livestock receipts" which I believe to be gross sales - not gross profits as I had alluded to above. Hence lower feed costs should provide larger margins. However, looking at net farm income numbers lower down the table, it's hard to separate out the livestock/crop differences. It seems to show both sectors are net losers to me. My questions still stand.]

Science - it's stranger than truth.

One other assumption that caught my eye is that the mandate (RFS) stays where it is. I think it is reasonable (politically) to suggest that number is going to rise. I made this case previously. In which case, the loss of tax credits and tariffs mean much less, I would think.

Reading carefully, I also note that the world very likely will not end without biofuel subsidies. (Well, they can't be absolutely certain of course)

The rest of the conclusions are pretty predictable. Ethanol production slips, ethanol expansion slows, and farmers lose about $3B in gross receipts.

Oh yeah, taxpayers save about $6B. As if we care.

Still, it kinda makes you wonder where the other $3B goes each year, doesn't it?

[The report does not note what the income implications for economic research organizations are if the tax and tariff weren't around to study.]

Labels: biofuel, economics, ethanol, policy

¶ 2:25 PM 0 comments

Monday, April 16, 2007

Everybody loves a subsidy...

ConocoPhillips and Tyson's announced plans to make biodiesel from animal fats. Sounds great, right?

Oil major ConocoPhillips and Tyson Foods Inc., the world's largest meat producer, said Monday they're teaming up to produce and market diesel fuel for U.S. vehicles using beef, pork and poultry fat.

The companies said they have collaborated over the past year on ways to combine Tyson's expertise in protein chemistry and production with ConocoPhillips' processing and marketing knowledge to introduce a renewable diesel fuel with lower carbon emissions than petroleum-based fuels. [More]

But wait, it's not just about patriotic energy independence-stuff. It's about tax breaks.

The decision to expand the break, which Blunt opposed, may be worth hundreds of millions of dollars to ConocoPhillips and other refiners, while increasing demand for products from Tyson, the nation's largest meat packer and second-largest poultry processor.

The tax credit was ``hijacked,'' said Brian Appel, chief executive officer of West Hempstead, New York-based Changing World Technologies, the privately held company that owns the plant in Carthage, Missouri, that Blunt was attempting to help when he inserted the provision into an energy bill in 2005. [More]

So when farmers complain about Big Oil getting tax breaks, they need to remember it is really hard to keep a subsidy to yourself.

Especially with this administration.

Labels: biofuel, policy, taxes

¶ 2:07 PM 0 comments

John's World Friday, June 08, 2007 Any minute now... A breathless announcement of a cellulosic ethanol breakthrough. At a Brazilian ethanol conference June 4-5, Brazilian government-funded researchers said they have perfected a method of producing cellulosic ethanol that drastically reduces the cost of processing. At this point, the assertion -- and many other similarly optimistic claims made at the conference -- is unconfirmed. But should it prove true, the world could well be peeking over the horizon at a massive geopolitical, not to mention economic, shift. [More] As many of you know, I consider cellulosic ethanol the cold fusion of agriculture - mostly because the energy density of the feedstock is so low, and transporting that much stuff negates the energy yield. More tricky is the problem of the ethanol production itself. Cellulosic biomass is bulky and materially complex, unfit for the same methods of ethanol extraction used with corn. In order to even get the stuff into manageable form, processors must soak it in a pre-treatment bath, followed by an acidic or enzymatic digestion that splits it into simple sugars. [More] Perhaps cellulosic ethanol will become a major part of energy plans. But think about the ramifications if we can sell crop residue. The ethanol boom will look like a cheap date. [via Andrew Sullivan] Labels: biofuel, energy, ethanol, technology ¶ 6:50 PM 0 comments Wednesday, June 06, 2007 Go figure... The livestock industry asked some economists to estimate the effects of letting ethanol tax credits and tariffs expire in 2008. They seem to think it would be a good idea. So, equations were concatenated, models lovingly constructed, and serious hard-core economicking was done. In the end, the cattle and pig folks perhaps didn't get the answer they anticipated. An excellent summary is here at Farmgate. But lightly skipped over in the report and the study paper itself was this little gem. Livestock producers pay lower feed costs, but their inclination to raise output in response leads to falling output prices as quantities move along an inelastic demand. [Full report] Run that around in your mind for a while. First lesson: it's your own fault. You silly producers and your "inclinations". Second lesson: Lower feed costs are actually bad for livestock producers, because when feed costs go down, producers put more cattle on feed and farrow more pigs. With demand inelasticity, livestock income then drops as more meat lowers the price. Say what?? Reading this backwards, can we assume the new higher prices for corn are raising profits in the livestock sector? Those cowboys and hog producers should be rolling in the profits when corn hits $6! I will be looking forward to some cattle economist reaction to this strange conclusion. My instinctive response is meat production expansion is more a function of higher sales prices rather than lower input prices. After all we had $1.80 corn and expansion livestock numbers did not explode. [Update: As I was driving to South Bend (3 hrs 9 min best time) I had one of those "poster-regret" moments. The report shows "livestock receipts" which I believe to be gross sales - not gross profits as I had alluded to above. Hence lower feed costs should provide larger margins. However, looking at net farm income numbers lower down the table, it's hard to separate out the livestock/crop differences. It seems to show both sectors are net losers to me. My questions still stand.] Science - it's stranger than truth. One other assumption that caught my eye is that the mandate (RFS) stays where it is. I think it is reasonable (politically) to suggest that number is going to rise. I made this case previously. In which case, the loss of tax credits and tariffs mean much less, I would think. Reading carefully, I also note that the world very likely will not end without biofuel subsidies. (Well, they can't be absolutely certain of course) The rest of the conclusions are pretty predictable. Ethanol production slips, ethanol expansion slows, and farmers lose about $3B in gross receipts. Oh yeah, taxpayers save about $6B. As if we care. Still, it kinda makes you wonder where the other $3B goes each year, doesn't it? [The report does not note what the income implications for economic research organizations are if the tax and tariff weren't around to study.] Labels: biofuel, economics, ethanol, policy ¶ 2:25 PM 0 comments Monday, April 16, 2007 Everybody loves a subsidy... ConocoPhillips and Tyson's announced plans to make biodiesel from animal fats. Sounds great, right? Oil major ConocoPhillips and Tyson Foods Inc., the world's largest meat producer, said Monday they're teaming up to produce and market diesel fuel for U.S. vehicles using beef, pork and poultry fat. The companies said they have collaborated over the past year on ways to combine Tyson's expertise in protein chemistry and production with ConocoPhillips' processing and marketing knowledge to introduce a renewable diesel fuel with lower carbon emissions than petroleum-based fuels. [More] But wait, it's not just about patriotic energy independence-stuff. It's about tax breaks. The decision to expand the break, which Blunt opposed, may be worth hundreds of millions of dollars to ConocoPhillips and other refiners, while increasing demand for products from Tyson, the nation's largest meat packer and second-largest poultry processor. The tax credit was ``hijacked,'' said Brian Appel, chief executive officer of West Hempstead, New York-based Changing World Technologies, the privately held company that owns the plant in Carthage, Missouri, that Blunt was attempting to help when he inserted the provision into an energy bill in 2005. [More] So when farmers complain about Big Oil getting tax breaks, they need to remember it is really hard to keep a subsidy to yourself. Especially with this administration. Labels: biofuel, policy, taxes ¶ 2:07 PM 0 comments US Farm Report host John Phipps surfs the Web so you don't have to... About Me Name: John Phipps Location: Chrisman, Illinois, United States Jan and I farm 1700 acres near Chrisman, IL. I have also written humor and commentary for Farm Journal and Top Producer for 13 years. Please visit my website (www.johnwphipps.com) to learn about my speaking services for your group's next meeting. View my complete profile ARCHIVES April 2006 / May 2006 / June 2006 / July 2006 / August 2006 / September 2006 / October 2006 / November 2006 / December 2006 / January 2007 / February 2007 / March 2007 / April 2007 / May 2007 / June 2007 / July 2007 / August 2007 / September 2007 / October 2007 / advertisement MORE FROM JOHN On the Coffee Table
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