Biofuel Bulls

October 6, 2010 04:00 AM
Biofuel Bulls

By Tom Dodge

Ask corn grower Gary Pestorious his view of the food versus fuel debate, and it’s clear the argument curdles his blood. The Albert Lea, Minn., producer swiftly relays USDA August estimates that project farmers will produce a bountiful 13.3-billion- bushel corn crop. "Without ethanol, we would have more than a 6-billion-bushel carryover," Pestorious says pointedly. "What else should we do with all that corn?"

Looking out over his cropping operation, Pestorious sees no shortage of corn for food or fuel. In 2009, U.S. farmers produced a record 13.1-billion-bushel corn harvest—and some 4.5 billion bushels (about 30%) went for ethanol production. There is still room to significantly grow the ethanol market without limiting the availability of corn, says Pestorious, who has watched corn yields on his farm bump up several bushels per acre annually.

"The American farmer can support both ethanol and food demand for years," he says. There is not a production problem, he adds, but there is an access to market problem.

Ethanol Bandwagon. When Pestorious talks about ethanol, people listen. His fervor was born in the 1990s, when he worked for six years with other farmers to round up the equity to build a 13-million-gallon ethanol plant in nearby Glenville, Minn. The state of Minnesota is a strong supporter of ethanol, using a subsidy program to start its ethanol industry.

The Glenville plant went into production in 1999 and today produces 44 million gallons of ethanol a year, remaining profitable despite last year’s high corn prices and low ethanol prices.

Around Glenville, ethanol is in farmers’ blood, says Jerry Janzig, co-founder of the Glenville, Minn., plant. "Our goal is to hold the value to our corn, so our local producers can keep farming," he says. "We want to stop exporting our young people out of the county. Ethanol plants have been an example of real rural economic development."

For Pestorious and his partners, the passion is also personal. Together they raise thousands of acres of corn that need a market. Ethanol is not only a solution to America’s energy needs, but the hope that Pestorious and other farmers have built a business on.

Pestorious spent the summer making the rounds of farm shows and trade events, asking ag-related businesses to get involved in ethanol promotion and support.

Rural development, market demand and weaning America off foreign oil are the chief reasons Pestorious wants every farmer in the U.S. to promote ethanol use. As a fifth-generation farmer and board member of three Poet-operated ethanol plants, Pestorious has the background to back up his beliefs. He recently was appointed to the board of Growth Energy, a national grassroots group whose mission is to reduce greenhouse gases, expand the use of ethanol, decrease dependence on foreign oil and create jobs across the U.S.

"Now, not later, is the time for companies like John Deere, Pioneer and Monsanto to join us in pro-moting ethanol," Pestorious says. "As a farmer, I will be keeping track of which companies help support ethanol and which companies don’t." Companies that are currently associate members of Growth Energy include CNH, DuPont Danisco Cellu-losic Ethanol, Kennedy and Coe, Novozymes and Syngenta Seeds.

The market should expect to see more farmers like Pestorious becoming bullish on ethanol as the industry recovers from the crash that led to three of the biggest ethanol producers seeking bankruptcy protection. A resurgent U.S. ethanol industry will use an additional 250 million bushels of corn through the next 12 months, according to USDA, and more than 4.5 billion bushels will be used to make ethanol during this marketing year.

Ethanol production and demand is rebounding, with production reaching an all-time high in June 2010, according to data by the Energy Information Administration. Demand for June also hit a record level. Based on data from the first six months of 2010, U.S. ethanol production is running at 12.87 billion gallons on an annualized basis.
Additional Incentives. In Sep-tember, for the first time since December 2009, ethanol prices topped higher than gasoline. The potential gains have prompted Valero Energy and Sunoco, Inc., to buy ethanol plants this year. Rising ethanol profit margins led Archer Daniels Midland, the Decatur, Ill.–based agribusiness giant, to start production at its new $540 million dry mill ethanol plant in Cedar Rapids, Iowa.

The National Corn Growers Association says ethanol production could grow to 15 billion gallons without affecting food supply or requiring the tilling of more ground, due to advances in corn yields (which increased 23% just in the last decade) and new efficiencies in ethanol production. There is also potential due to increased crop conversion. In recent years, for example, Kansas, "the wheat state," has grown more corn than wheat.


This fall is pivotal for corn farmers who are waiting to see if the Environmental Protection Agency (EPA) will approve the use of 15% ethanol (E15) blends in gasoline, up from the current 10% (E10). The ethanol industry says it could handle more corn if E15 is approved.

Pestorious feels it is important that both consumers and farmers understand the ethanol industry is not pushing for an E15 mandate.

"We’re asking EPA for a waiver so people have a choice of ethanol blends for flex-fuel cars," he says. "Without ethanol, we are mandated to petroleum."

An increase in ethanol blends at the pump from E10 to E15 would have a substantial impact on the demand for grains used in ethanol production, providing long-term support for grain prices. EPA expects total impact from increased use of ethanol would increase net farm income by $13 billion in 2022.

With corn production continuing to increase, Pestorious believes ethanol is a solid solution for the demand side of the market. "I know that without ethanol, farmers in this country would be in real trouble," he says, watching a train of grain cars pass by on the tracks just outside his window.

Ethanol Attracts New Attention in Washington

The blast of the Deepwater Horizon offshore drilling rig explosion and resulting oil spill into the Gulf of Mexico ignited demands for a new national energy policy focused on renewable fuels. The ethanol industry now has secured front-row seats for that debate.

Two of the industry’s prime issues are scheduled to come to a head later this year. This fall, the Environmental Protection Agency (EPA) should complete an analysis that, if approved, will allow up to 15% ethanol blends (E15) nationwide—an increase from the 10% (E10) currently allowed.

"The EPA administrator has indicated that we’re going to have E15; they’ve already discussed labeling," says USDA Secretary Tom Vilsack. The next discussion is which vehicles the labeling will apply to.

Sen. Charles Grassley (R-Iowa) expects movement on the issue before the November elections. "Everybody talks about the Congress doing nothing in an election year, but I think we will get something done," Grassley recently told Iowa’s "Market to Market" public television show. "We need to. Do you want to have renewable fuel from the Midwest or get your oil from dictators in Venezuela?"

The other hot ethanol topic on Capitol Hill this year is legislation to extend the Volumetric Ethanol Excise Tax Credit (VEETC), which is scheduled to expire at year’s end. VEETC allows refiners and blenders a 45¢-per-gallon tax credit on each gallon of ethanol they blend. This is a vital incentive for companies to invest in blending equipment and create ethanol fuel from several sources, including corn, biomass and even algae.

Tax Credit Extension Dims. Ethanol backers admit the prospects for extending the VEETC have dimmed given the growing focus in Washington on reducing the budget deficit. Extending the VEETC would carry a cost of around $6 billion annually. Folks like House Ag Committee Chairman Collin Peterson (D-Minn.) say they’ll fight efforts to reduce the VEETC to 36¢ per gallon. The ethanol import duty, however, will likely stay since that generates revenue.

Growth Energy is lobbying Congress to support its Fueling Freedom plan, which would use a portion of the VEETC to install blender pumps across the country in order to give Americans a choice of fuel at the pump.

Along with the VEETC extension, industry insiders are working the Hill to maintain the current tariffs on foreign imports of ethanol.


Top Producer, October 2010

Back to news


Spell Check

No comments have been posted to this News Article

Corn College TV Education Series


Get nearly 8 hours of educational video with Farm Journal's top agronomists. Produced in the field and neatly organized by topic, from spring prep to post-harvest. Order now!


Market Data provided by
Brought to you by Beyer