Ethanol Frenzy: The Truth About Ethanol

Corn-state politicians are beaming over the ethanol frenzy, which has raised corn prices to as high as $4/bushel. Here's why they are so jovial. Farms are suddenly profitable, thanks to the ETHANOL FRENZY.

Typical yields per acre for Corn vary from 140 bushels/acre up to a mythical 300 bushels/acre, which is no longer fantasy. Yields per acre are rising, on average, due to higher-yield corn from Genetic-Modification efforts.

Yes, gentle reader, the GM revolution is occurring as we speak, at least here to the food we eat; in Europe, there is some resistance.

The price of corn has been around $2/bushel. Bushels of corn weigh: 70 lbs. unhusked and 56 lbs. (ears). Hence, it's easier to talk about "bushels" than "pounds".

2005 was a bad year for corn farmers, 2004 was better. Here's why:

Year20042005
Yield per acre169156 bushels/acre
Dollars per bushel.$2.13$1.81
Dollar yield per acre$363$285

Operating cost/acre$170.$193 (cash cost of planting, harvesting)
total cost per acre$372.$401 (total cost of farming)

Operating p/l.$191$91 (paying for labor, diesel, etc.)
Total return.-$10-$116 (not amortizing equipment, land)

http://www.ers.usda.gov/data/costsandreturns/data/current/C-Corn.xls

Cost of fuel, electricity: $30 to $40/acre. That means, probably, that the farmer used no more than 10 gallons of diesel per acre of corn.

The yield went down in 2005, and the price went down.
This number is vital to farm existence, and means hard times.

When corn prices are below $2/bushel, the farmer is operating in the red, just meeting cash costs and not amortizing the land or replacing equipment. It's a hard row to hoe.

"...2007 U.S. corn acreage is seen at 90.454 million acres, compared to 78.327 million for 2006...The rise in acreage is attributed to the bullish long term demand outlook for corn and ethanol..."
http://www.brownfieldagnews.com/gestalt/go.cfm?objectid=A329C7AD-93DE-A350-B30458A3B6753A38

We might expect 12 billion bushels of corn this year; about 2 billion are exported. This is $4 billion (now $8 billion) in foreign exchange, but it also means cheap corn for foreign lands.

Now how much ethanol can be produced from 12 billion bushels of corn, assuming that none is exported?

According to one source,
"...580 million bushels of corn will be used to produce 1.31 billion gallons of ethanol. That's a ratio of 2.26 gallons per bushel. Scale that up to the entire 11 billion bushel per year US corn crop and dedicate it all to ethanol and the result would be only 24.85 billion gallons of ethanol. But ethanol has only 67.5% as much energy per gallon as gasoline. So all the US corn production diverted to ethanol would yield the equivalent of only 16.77 billion gallons of gasoline as compared to the 140 billion gallons consumed per year. But corn production uses energy..."
http://www.futurepundit.com/archives/003271.html

The fuel cost that goes directly into producing the corn is about 10 gallons of diesel per acre. Each acre that produces 150 bu of corn uses, then, 10 gallons of diesel and produces about 330 gallons of ethanol per acre, equivalent to 231 gallons of gasoline or about 200 gallons of diesel. There are other energy costs, including the cost of making fertilizer, transport and so on.

There is also a nasty $3B ethanol subsidy per year from the federal government, appx. 75 cents per gallon. Amazing that so much should be spent for so little, when Chevron bought control of NiMH for only $180 million.

One problem is that corn production rising means soy bean production is falling, and means that lots of other dominos fall. Failure to export corn means more hunger, perhaps, but also some good results, meat prices will rise, vegetarians proliferate, but soy and other food prices will jump as the use of farm products for fuel works up the supply chain.

The bigger problem is that diverting ALL of our corn to ethanol will only replace the energy equivalent of 17/140 or about 12% of our current gasoline usage. Not to mention our diesel usage.

Once again, intuitively, we can't use ONE year's sunlight to replace the stored energy of millenia, which we tap into when we burn oil. We could, of course, if we decreased our use of energy down to the equivalent of 16 billion gallons of gas per year (from 140 billion gallons per year). Ironically, that would be just about the reduction to expect if people drove EVs (up to 6 miles per kWh for an EV vs. our fleet average of the equivalent of .6 mile per kWh).

Other alternatives are to expand the acres devoted to corn from 90 million to 700 million, or plant sugar cane, or import ethanol from places that don't burn so much energy. But all of these ideas have downside costs, and more energy usage.

But one good result of the "ethanol frenzy" is that corn prices have zoomed to $4/bushel, raising the farmer's return per acre, finally, above the total cost of production. At $4/bu, each acre might yield, assuming good weather, up to $700/acre, and, for once, we'd be rooting for MORE farm products instead of paying farmers not to grow crops.

Each 160 acres planted to corn would yield a cash return of $80,000 and a fully-amortized return of $50,000. And the good thing, all this wealth would be piled onto those who own and farm the land, instead of oil companies. Unfortunately, also onto agribusiness and GeneMod companies, too.

But in any case, the whole ETHANOL FRENZY thing is a scam, because we still have the cost of refining the corn into ethanol, and no matter what we do, ethanol will always, one way or the other, cost more than gasoline. This is not entirely bad; if people get used to paying $8/gallon of ethanol-gasoline mix, the impetus for EVs will be greater.

In this vein, you might notice that corn prices paid to the farmer have been somewhere around $2 for 67 lbs. of unhusked corn, or about 3 cents per lb. Consider what we pay for corn in the market, and it's obvious that farm prices have been depressed for far too long.

While the farmer's pay for wheat is less than 10 cents per lb., bread costs $2/lb., and bread is nothing but wheat, water, yeast, a bit of sugar, and some flavorings. 95% of the retail price goes to the baker and wholesaler, and only 5% reaches the poor farmer. That's been a great tragedy, and led to the wholesale use of pesticide, herbicide, hybrid seed, and phony farming.

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Typical costs for one recent year for Illinois are contained in a neat table here:

http://www.farmdoc.uiuc.edu/manage/newsletters/fefo05_09/fefo05_09.html

Other information is on line, Iowa is perhaps the bellweather Corn state,
So numbers vary slightly. Yields are lower in Canada, higher down south.