Mason City Globe Gazette, IA
10-01-06
ETHANOL: Evolution of a Revolution: Renewable fuels boom faces uncertain
future
By TODD DORMAN, Globe Gazette Des Moines Bureau
BLAIRSTOWN — Along a rural Benton County road, fresh evidence of a
renewable fuels boom coexists with signs of the industry’s uncertain future.
Beneath a tent at the groundbreaking for a planned 40 million-gallon ethanol
production plant, boosters’ bravado mixes with the aroma of free burgers.
Ethanol backers climb onto a trailer decked with American flags to give short
speeches about ethanol’s big potential.
“While this is great for the Blairstown area, it’s part of a larger movement around
the world,” said Monte Shaw, executive director of the Iowa Renewable Fuels
Association, who spends much of his time breaking ground and cutting ribbons.
“Iowa is on the cutting edge.”
But the company building this plant, New York-based Xethanol, is also hedging
its bets. It hopes to turn an existing smaller plant at the site into a pilot facility for
making ethanol out of materials other than corn, such as switchgrass.
In 2001, Iowa was home to seven ethanol plants. Now there are 25 with eight
more under construction and as many as two dozen others on the drawing board.
All are fueled with Iowa corn. The day may come when corn is no longer king.
Xethanol wants to be ready.
“I think expansion will continue,” said Jim Stewart, the plant’s general manager.
“But in our case we’re looking to expand into non-traditional ways of making
ethanol.”
Since 1980, U.S. ethanol production has doubled, on average, every five years.
In 2002 the industry produced just more than 2.1 billion gallons. This year,
production is expected to top 5 billion gallons.
The federal government has mandated that U.S. production capacity reach 7.5
billion gallons by 2012. Some farm-state politicians have advocated increasing
that mandate to 12 billion gallons.
Nearly $4 billion has been invested in Iowa ethanol plants alone, and economists
estimate that 6,000 jobs are tied to the industry statewide. Politicians
crisscrossing the state this fall have made renewable fuels production the
cornerstone of their economic growth plans.
But the boom also is yielding an obvious question — how long can it last?
No consensus
Even among farm leaders who have watched ethanol grow since its Iowa advent,
there is no consensus.
“In my mind we’re going to go through the ethanol bust at some point,” said
Varel Bailey, an Anita farmer who pumped some of the first gallons of ethanol
fuel sold in Iowa back in 1978.
“To me it’s a gold rush. And if you’ve ever been around a gold rush, everybody
rushes in one direction and everybody is climbing over one another to get the
right claim. There’s no question in my mid that we’re going to overdo it,” Bailey
said.
Bailey’s longtime friends, part of a tight-knit group of farm and political leaders
who call themselves the “gang of seven,” don’t share his cautious outlook.
Thurman Gaskill, a Corwith farmer and state senator who led the Iowa and
National Corn Growers Association, invested $36,000 in an ethanol plant being
built near Council Bluffs and $20,000 in a biodiesel plant under construction near
Algona.
Dan Stadtmueller, who farms near Monticello, is investing in corn. He and his
son, Darren, built four large grain bins this year hoping to sock away a bumper
crop as corn prices rise steadily.
“The future looks bright,” Stadtmueller said. “Although there have been other
times it looked bright, and we got brought down to reality.”
Investing in change
Gaskill’s farmstead is evidence that his family hasn’t been afraid to invest in
agricultural change.
Beyond a hulking barn built in 1914 is a machine shed housing tractors guided
through the field by satellites.
All around are tall rows of corn planted in perfect, surgically-straight rows.
Gaskill is sinking his money into renewable fuels, but even he is uncertain about
its long-term prospects.
“Ethanol is a stepping stone, in my view,” Gaskill said. “As we progress through
this there will be a point where we’re saturated with ethanol.”
Maket uncertainty
The market is also uncertain.
Hawkeye Holdings Inc., an Iowa Falls-based ethanol producer, recently
postponed its plans for a $366 million public stock offering. The company cited
market conditions for its decision.
VeraSun Energy Corp.’s June stock sale initially was boosted by skyrocketing
ethanol and gasoline prices. Since then the company’s stock has fallen 20
percent in value as ethanol prices dropped.
Iowa State University Economist John Miranowski, however, contends
renewable fuels remain a good long-term bet.
“I see this as probably the most exciting period in Iowa’s agricultural history,”
Miranowski said. “I think we will basically see expansion continue.”
Miranowski argues that demand for renewable fuels will continue to climb as long
as oil prices remain high, whetting the nation’s desire for an alternative.
Even if the industry turns to crops other than corn, Miranowski still expects
production to be centered in the Midwest.
Investors are still lining up. The Des Moines Register reported last week that
Iowa venture capitalist John Pappajohn is seeking to raise $800 million from Wall
Street investors to acquire several farmer-owned ethanol plants. The resulting
company, Renewable Energy Plus, would be among the nation’s largest ethanol
producers.
Experts say it’s also unlikely there will be any serious move to alter a complex
safety net of government subsidies and tax breaks that have allowed the industry
to survive and thrive. Presidential candidates campaigning in Iowa have lined up
to sing ethanol’s praises.
Jerry Taylor, a senior fellow at the Cato Institute, is a critic of those subsidies but
concedes that they are “bullet-proof politically.” Cato is a non-profit research
foundation based in Washington, D.C.
“The bulk of the corn comes from very, very large industrialized farms,” Taylor
says, not the “ma and pa” farms many envision.
Corn and more cornStadtmueller, the farmer from Monticello, is used to adapting
to rapidly changing conditions, both economic and natural. In March of 1990,
before planting season, a tornado wiped out his farm and forced him to rebuild.
“It was a good time for it to happen because it doesn’t disturb the crop,”
Stadtmueller said.
Stadtmueller and his son grow 2,000 acres of corn. They use a special planting
method that allows them to raise corn on the same ground where corn grew the
year before. And they inject nitrogen into the ground after planting, a technique
that allows them to use less than farmers who apply the fertilizer in the fall.
“Farming’s been in my blood all my life and it’s been very good to me,”
Stadtmueller said. “Whether ethanol comes or goes, we’ll still do well here.”
Ethanol demand will be very good for grain farmers, according to Iowa State
University agricultural economist Bob Wisner.
Wisner said even this year’s expected 11-billion bushel bumper corn crop is not
enough to fill demand for corn. Corn processing for fuel will eat up 2.1 billion
bushels, a bite that will grow to 3.3 billion bushels in less than two years.
By 2008, corn prices are expected to approach $3.30 per bushel compared to
$2.50 on the current market. Soybean prices also are expected to jump.
“It’s very good news if you’re a cash grain producer,” Wisner said.
But it could be bad news if you’re a hog producer or a grocery consumer.
A byproduct of ethanol production, distillers grain, is a valuable feed for cattle
and dairy operations. But it’s far less desirable for poultry and hog producers.
Changes in the feed’s processing eventually could solve that problem.
Still, Wisner said high corn prices could lead to increases in the price of pork and
poultry products. He said there should not be much impact on foods containing
sweetener or other corn-based components.
The good news is the high price of corn is likely to accelerate the drive to make
ethanol from something else.
The next big thing
Bailey, the farmer from Anita, contends farmers are capable of adapting to the
need for more grain.
“I remember in the early days of the Corn Growers when we were producing less
than 5 billion bushels a year. Somebody said we’re going to produce 10 million
bushels of corn some year and everybody laughed,” Bailey said. “The American
farmer can respond in an amazing way and with amazing speed for the demands
of the marketplace.”
But the renewable fuels industry is looking beyond the corn era.
If the nation’s goal is energy self-sufficiency, most researchers agree that grain
ethanol is not the answer.
According to researchers at the University of Minnesota, using every bushel of
U.S. corn to make ethanol would meet only 12 percent of the nation’s annual
thirst for fuel.
“I always tell people that ethanol is not the goal,” said Robert Brown, director of
the Office of Biorenewables Programs at Iowa State University. “Ethanol is
one pathway to a goal, and that goal is to reduce imported petroleum.”
Iowa State is spending millions of dollars to find the next pathway. And although
the chase is leading in many directions, much of the focus is on cellulosic ethanol
distilled from an endless list of plant materials, from woodchips to cornstalks.
The allure
The allure of making valuable fuel from waste materials is obvious. Researchers
say switchgrass, for example, would deliver more net energy than corn because
it takes less fuel and fertilizer to grow. It could also be grown on less desirable
land, leaving prime land for food production. The fuel it creates would be
cheaper.
“I think we’re getting very close,” said Brown, whose office has received $30
million in federal and private research dollars over the past three years.
“If you had asked me the question of how soon just a few months ago, I would
have said five or six years if we’re lucky. But it appears that a number of
companies now are rising to the challenge,” Brown said.
One is British Petroleum, or BP, which is searching for a place to create a $500
million biofuels research facility. Iowa State is among several universities vying to
house the research center.
BP also is partnering with DuPont in an effort to put “biobutinol” fuel in America’s
gas tanks. Biobutinol is an alcohol fuel made from grain with chemical properties
that make it much like gasoline.
Unlike ethanol, biobutinol does not sap gas mileage and can be transported in
pipelines when blended with gasoline. But it could take years to develop
technology for making the fuel on a commercial scale.
Brown believes the current boom will end, but a better industry will remain when
the dust settles.
“I think this is a transforming event for us. There may very well be a bubble that
bursts in the ethanol industry,” Brown said “But that doesn’t mean it collapses. It
means we reach a new level of maturity and sophistication.”