Editorial: Nebraska’s ethanol sector faces major challenges and opportunities

Source: By Editorial Board, Omaha World Herald • Posted: Monday, February 25, 2019

Ethanol is big business in Nebraska. The state’s 25 ethanol plants, with a 2017 production value of $2.8 billion, enhance the economy of their rural host communities and provide a major value-added boost to the state’s ag sector.

Ethanol is now the third-largest component in the state’s agricultural economy, behind corn and cattle, University of Nebraska-Lincoln economists report in a new economic analysis done on behalf of the Nebraska Ethanol Board.

The state’s ethanol industry employs more than 1,400 people full-time. The sector generated an estimated 5,166 full-time jobs through direct and indirect economic impact in 2017, with $370 million in total labor income. The average annual earnings for those jobs was $71,600, well above the state average.

Corn producers near a Nebraska ethanol plant receive a boost in their selling price, according to the UNL report, which examined 2014-17 data. Such a farm producing 220 bushels of corn per acre would receive an additional $11.44 per acre each year.

“Between 2014 and 2017,” the report said, “the productive capacity of ethanol in Nebraska increased by 23 percent and the number of full-time employees increased by 11.7 percent.” Despite the fall in prices, the Nebraska ethanol industry “has shown resilience through continued expansion in total capacity and diversification into co-products.”

The U.S. ethanol industry faces serious challenges at present, given a combination of factors: production that has exceeded demand, low selling prices, hefty Chinese tariffs and delays by the federal government in enabling year-round sales of a 15 percent ethanol blend nationwide.

“The U.S. ethanol industry was rocked by low prices in 2018,” the University of Illinois said in a recent report, “especially in the second half of the year when prices reached their lowest levels in over a decade.”

Although domestic and export use for U.S. ethanol increased since 2014, “both production capacity and actual production have increased even faster,” the report said. “For example, ethanol production in the U.S. looks to have topped 16 billion gallons for the first time in 2018, and this has simply been too much for the domestic and export fuel markets to absorb.” Ethanol firms have responded by lowering production in recent months.

The University of Illinois study looked at multi-year investment returns and concluded that the ethanol sector remains a sensible investment opportunity, despite current complications: “Ethanol plants have a more than respectable record of investment performance over the last dozen years.”

China presents the potential for major export sales for U.S. ethanol producers, analysts say — if our country and the Beijing regime can resolve their current trade impasse. China has ambitious plans to blend ethanol into its fuel supply by 2020, but reaching its goal will likely require it to import an estimated 1 billion gallons or more of ethanol annually. The U.S. is the only high-volume producer capable of supplying much of that need.

Ethanol is now closely connected to Nebraska’s agricultural economy. The industry has key obligations to manage itself soundly, just as the federal government should work to open the industry’s access to major overseas markets.