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Broin: Expand Ethanol to Avoid Hard Times

Telling corn farmers that ethanol is vital for decent prices could be preaching to the choir. After all, USDA projects corn purchases for ethanol and its byproducts to reach 5.2 billion bushels in the current marketing year, just barely behind the top corn market for livestock feed (and residual use) at 5.25 billion bushels.

But just in case we’ve forgotten, one of the nation’s leading choir directors for the ethanol industry, Jeff Broin, wants to remind us. Broin is executive chairman and founder of one of the nation’s largest ethanol producers, POET, LLC, based in Sioux Falls, South Dakota. And he’s co-chairman of the ethanol trade group, Growth Energy, which petitioned the EPA to approve 15% ethanol blends, E15, for use by most of the cars and trucks on the road today.

“I think some farmers understand the importance of ethanol. I think that more understood it 15 or 20 years ago than understand it today,” Broin told Agriculture.com in an exclusive interview this week. “I think somehow some have forgotten the importance of ethanol in that it really changed the agricultural paradigm that we all lived 20 or 30 years ago.”

“Back in the early 1980s when my father started looking at producing ethanol on his farm, corn prices were as low as $1.30 a bushel while costing more than two times that much to produce. At the time, not only was there a surplus of grain and low prices, there were set-aside acres and also storage payments for farmers to store corn that there was no market for,” Broin recalled. “So, from a farmer’s perspective, in the early 1980s the future of agriculture looked pretty bleak. That’s when my father built the small plant on his farm, which eventually led us to purchase a bankrupt facility and start what is today POET. The growth of ethanol over the next 20 years would definitely begin to balance the commodity supplies, not just for the U.S. but for the entire world.” 

Pointing to two graphs that show recent trends in U.S. ethanol production and farm income, Broin makes the case that even more ethanol production is needed.

“If you look at the crop producer, the American farmer, ethanol is very important to them,” Broin said “There’s a graph that shows that as ethanol production grew, grain prices went up as well. But after ethanol production stabilized and plateaued, shortly after that, grain prices started to drop.  If you look at the increases in yield in the U.S. and around the world, and then you look at all the uses of corn and the rate at which they’re increasing, there is no way we can use up the future supply of corn and balance the market without more ethanol production and a higher percentage of ethanol in gasoline.”

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The graph showing income starting to fall is based on USDA data that was published by Congressional Research Service.

In June, the EPA is expected to announce its proposed blending mandates, known as renewable volume obligations (RVOs) under the Renewable Fuel Standard (RFS). Broin’s case for blending higher levels of ethanol comes at the same time that a group of 37 U.S. senators called on the Agency to “reverse course from the 2014 proposed rule and maintain a strong RFS.” 

If the EPA followed the original goals of the RFS in the 2007 Energy Independence and Security Act, the implied mandate for corn ethanol would be about 15 billion gallons this year, well above more than 13 billion gallons used in the U.S. in 2014. 

When asked what he thinks EPA will do, Broin said it’s difficult to predict.

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“We’re hopeful that the government stands behind its initial commitment in the RFS and holds to the volumes that we’re committed to,” Broin said. “I think it’s obvious that we can produce enough ethanol to meet the RFS and I think it’s also obvious that we have the corn supply and now cellulose as well to meet or exceed the RVO numbers. In addition, E15 is moving into several markets in the country and starting to increase the use of ethanol.”

POET and other ethanol producers have been working with the National Corn Growers Association to offer incentives to regional fuel chains that agree to sell E15 and another announcement in the Midwest is expected soon.

That’s one reason Broin thinks ethanol production for the U.S. market could be expanded.

“The industry has produced well above the renewable fuel standard many times in the past, and I believe it will again in the future. In addition, cellulosic ethanol will create new volumes as well.”

Poet is one of three large companies, along with DuPont and the Spanish energy company, Abengoa, that is starting to commercialize cellulosic ethanol. POET began making cellulosic ethanol at its Emmetsburg corn ethanol plant last September in a joint venture with Royal DSM of the Netherlands. The  POET-DSM Advance Biofuels cellulosic plant has a capacity of 20 million gallons which will be ramped up to 25 million gallons. 

A smaller, 2-million gallon capacity bolt-on plant at Quad County Corn Processors in Galva, Iowa, claims to be first in commercial cellulosic production last year with a process than converts corn kernel fiber into the advanced fuel.

So far, cellulosic ethanol production has lagged behind the original targets in the RFS and when the EPA proposed lowering mandates in November, 2013, investment in more cellulosic ethanol plants was considered a victim of the apparent weakening of EPA commitment to expanding ethanol use. EPA leaders have suggested that targets to be announced in June will be larger and that the agency will be “getting the program back on track.”

Broin said the EPA needs to support cellulosic ethanol through the RFS as well, or the industry could move outside of the U.S.

“As we look to building cellulosic ethanol plants, we’ve had significant interest from other countries around the world,” Broin said. “EPA needs to continue to show support for both grain and cellulosic ethanol, or there’s a high probability these plants could  be built somewhere else. America and rural America will miss the opportunity to create the jobs and the revenue here.” 

“It could be almost anywhere. There’s waste cellulose in virtually every country in the world,” he added. “The U.S. currently has a billion tons of cellulose that goes to waste every year, that could produce 80 billion gallons of fuel, which is enough to replace our imports of oil for automobiles.”

If ethanol production from corn also doesn’t expand, Broin worries that the effects of depressed corn prices will ripple through the farm economy.

“We’ve seen more than a trillion dollars in increased land values in the last seven years, thanks to a balanced commodity supply, that was buoyed up by ethanol production,” Broin said. “All that new land value, that balance sheet value, could easily go away like it did back in the 80s. Why? Because ethanol quit growing.”

“It changes the dynamics worldwide, for everyone, including the African farmer, the Indian farmer, and the Venezuelan farmer and the Ukraine farmer,” Broin said.   

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