Current Status of Ethanol: Causes of the Crisis

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Current Status of Ethanol Causes of the Crisis
Emerging Challenges
By Dr. Robert Wisner Biofuels Economist
University Professor Ag Marketing Resource
Center Iowa State University Ames, Iowa U.S.A.
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Current Environment

• Several major bankruptcies VeraSun, Pacific
  Ethanol others
• About 15 of the 170 U.S. ethanol plants are idle
• The remainder operating at avg. 80-85 of
  capacity
• Plants under construction (17), completed, or
  nearly completed could add about 20 to capacity
• Approximately 1.25/bu. drop in corn prices since
  June 11 helps returns

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Factors Behind Bankruptcies

• Excess industry capacity due to rapid growth
  failure to fully assess impact of growth on corn
  market
• Excessive debt
• Plant design defects
• Poor risk-management strategies
• Protecting price of feedstock rather than
  protecting margin
• Use of pricing tool unsuited for extreme market
  volatility

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Assumes all consumers are willing to use ethanol
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Will big ethanol returns re-occur? Probably not.

• Slower market growth with ethanol as gasoline
  substitute
• Ethanol may soon be largest user of U.S. corn
• Large increase in ethanol a few years ago had
  small corn market impact
• Thats no longer true
• Will it be true in the future? Depends on corn
  yield trend
• Cellulose ethanol higher cost competing in
  E-85 market

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Ethanol Contribution to Energy Self-sufficiency

• 2008 ethanol equivalent to 4.2 of U.S. crude
  oil use 6.3 of crude oil imports -- on a
  volumetric basis
• Energy-equivalent basis 2.8 of crude oil use
  4.2 of U.S. crude oil imports
• Use of petroleum in ethanol production is not
  deducted from these numbers, so actual
  contribution is less
• Conclusion view ethanol as one element in a
  portfolio of potential contributions to U.S.
  energy self-sufficiency

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Conclusions

• Ethanol industry will struggle with over-capacity
  until blending wall is eliminated, possibly
  longer
• Future growth depends on GHG blending policies,
  corn yield trend, cellulose technology
  break-through
• Industry to become more integrated with
  petroleum, have fewer firms
• Future of cellulose ethanol questionable
• Mandates next 3 yrs. 100, 250 500 mil. Gal.

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