Ground Cover North : Ground Cover 064 September-October 2006 - North
Ethanol set to redefine US cropping A leading US grain trader explains some of the anomalies emerging in the ethanol debate, highlighting a gap between politicians' and investors' enthusiasm for an alternative home-grown fuel and grains industry economics BY KELLIE PENFOLD n The vice president of one of the largest grain brokerages in the US suggests the boom in his country’s ethanol production has the potential to be a “life-changing event” for those in the grain production pipeline. Terry Reinhart, vice president of Illinois- based Advance Trading, likens the impact of ethanol to when the Soviet Union suddenly became the major buyer of US grain in the 1970s, which was followed by the sudden embargo on trade with the Russians in 1980. From 1972 to 1974, the prices of corn, wheat and soybeans more than doubled. “It was a career-changing event,” Mr Reinhart says. “Some people went broke, some survived and some just stuck their head in the sand. Now we are going to take corn, grind it up and burn it to make fuel. That involves a lot of change. However, we have been making alcohol out of grains for thousands of years, so it is not technologically demanding.” He says that today the US is building ethanol plants faster than it can grow corn: “In the US you cannot talk about grain prices without talking about ethanol.” At the recent Agriculture Australia conference in Sydney, Mr Reinhart said that when all the ethanol plants under construction or being planned were up and running, production of corn-based ethanol in the US would reach 13 billion gallons (58 billion litres) a year by 2012–13, utilising 118 million tons (106.2 million tonnes) of corn. The United States Department of Agriculture (USDA) suggests a more conservative seven billion gallons (31.5 billion litres) in 2010, but this is still double the production of 2005. Last year US farmers grew 80 million acres (32 million hectares) of corn. Next year 85 million acres (34 million hectares) will be needed – the largest acreage ever. According to figures calculated by Terry Reinhart, Biofuels GROUND COVER SEPTEMBER -- OCTOBER 2006 16 Syngenta Crop Protection Pty Limited, Level 1, 2-4 Lyon Park Road, North Ryde NSW 2113. ABN 33 002 933 717. ® Registered trademark of a Syngenta group company. www.syngenta.com.au RENARD SYN4893 06/138 Powdery mildew Stem rust Septoria tritici Barley scald A broader spectrum cereal TABLE 1 POTENTIAL ANNUAL ETHANOL ENERGY OUTPUT COMPARED TO PETROLEUM PRODUCTS Annual petroleum product consumption, megalitres (ML) Wheat Wheat Sugar Per cent of petroleum products Good year 6,900 ML Drought 2,000 ML Good year 2,500 ML Petrol 19,876 35.0 10.0 12.5 Diesel 15,185 43.0 13.0 18.5 Petrol + diesel 35,060 20.0 5.5 7.0 Crude oil 53,900 13.0 4.0 4.5 Ethanol % Energy MJ/litre Equivalent petrol litres Equivalent price $/litre 0 34.60 1.00 1.35 10 33.50 1.03 1.39 20 32.35 1.07 1.44 30 31.22 1.11 1.50 40 30.10 1.15 1.55 50 29.00 1.19 1.60 TABLE 2 ETHANOL-PETROL BLENDS REDUCED ENERGY PER LITRE SOURCE: A PAPER BY BRIAN J. FLEAY AT THE AGRICULTURE AUSTRALIA CONFERENCE, SYDNEY, 2006 the profit in growing corn for growers in Illinois, before land costs and government payments, was around US$70/acre (A$230/ ha) as opposed to wheat at minus US$2/acre (–A$6.57/ha) and soybeans at US$46/acre (A$151/ha). To meet the ethanol demand in 2012, a further 32 million acres (13 million ha) of corn will have to be grown in the US – equivalent to 5.6 million truckloads or 1625 Panamax vessels (ships of the maximum size that will fit through the Panama canal). “This extra production would require another US$140 billion (A$184 billion) in investment and another 130 million US tons (117 million tonnes) of storage – a 26 per cent increase on present storage capabilities,” Mr Reinhart says. “We then need to look at infrastructure. Our railroads are already operating at capacity, therefore we will need more road transport. The battle will become whether we eat corn or burn it.” He predicts the US will concentrate on growing corn and wheat and leave other countries to grow oilseeds. However, illustrating some of the inconsistencies in the ethanol rush, Mr Reinhart says that at the current US$85/ ton for corn, there was not enough incentive for growers to sacrifice other crops to grow more corn. The USDA has predicted that growers might shift from a corn- soybean rotation to a corn-corn-soybean rotation, or just continuously crop corn. He points out that one of the key factors The vice president of Advance Trading, Terry Reinhart: ethanol could be life-changing. Ethanol from Australia's wheat and sugar production compared with the annual consumption of auto petrol, diesel and primary oil. Ethanol has a lower High Heating Value (HHV) per litre than petrol. Therefore, more litres of fuel are needed for the same energy content when ethanol is blended with petrol. Fuel consumption will rise per 100km and a full fuel tank will have a shortened range. The cost of transporting feedstock to ethanol plants will affect the economic size of ethanol plants, favouring many small plants as transport fuel costs rise.
Ground Cover 065 November-December 2006 - North
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