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Current Status of Ethanol: Causes of the Crisis & Emerging Challenges

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. Current Environment. Several major bankruptcies: VeraSun, Pacific Ethanol & others

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Current Status of Ethanol: Causes of the Crisis & Emerging Challenges

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  1. 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.

  2. 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

  3. 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

  4. Assumes all consumers are willing to use ethanol

  5. 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 • That’s no longer true • Will it be true in the future? Depends on corn yield trend • Cellulose ethanol: higher cost + competing in E-85 market

  6. 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

  7. 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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