Production decline, cloudy export outlook fail to dent industry zeal

Source: Amanda Peterka • E&E  • Posted: Monday, February 27, 2012

Ethanol production has dipped slightly with the expiration of a key federal tax credit and import protections, but the industry is still waxing enthusiastic about the corn-based fuel.

Ethanol production has fallen about 4 percent in recent weeks from December levels, said Joseph Glauber, chief economist at the Department of Agriculture. Speaking yesterday at the agriculture industry’s annual outlook forum in Arlington, Va., he blamed the decline on expiration of the $6-billion-a-year blenders tax credit and the import tariff of 54 cents a gallon.

The ethanol industry is coming off a record year in 2011, in which it produced 13.9 billion gallons. In December, it was producing an annualized level of about 14.8 billion gallons, Glauber said.

But Congress allowed the Volumetric Ethanol Excise Tax Credit, or VEETC, to expire Dec. 31, a move supported by the ethanol industry. Since then, ethanol production has declined slightly.

Even with the record levels seen last year, the so-called blend wall remains a major obstacle for the industry, Glauber said. The blend wall — the legal limit of ethanol allowed to be mixed with gasoline — is now at 10 percent, or 13.5 billion gallons. Anything produced above that limit has to be stored or sent overseas.

Last year was also a record year for exports. Glauber said an estimated 900 million gallons of ethanol was exported, 43 percent of which went to Brazil, where sugar cane is the predominant feedstock for ethanol. High sugar prices and poor crops cut ethanol levels in Brazil.

Meanwhile, in Orlando, Fla., at the annual National Ethanol Conference, ethanol proponents yesterday hailed their industry as a “critically important contributor” to the U.S. economy.

“The state of the ethanol industry is strong and getting stronger,” Renewable Fuels Association President Bob Dinneen said.

Dinneen called for expanding exports and other bioproducts to get beyond the blend wall. “In today’s market, export opportunities are keeping plants open and operating, and exports will continue to be critical to our profitability moving forward,” he said.

But Glauber warned the industry’s export prospects this year aren’t as rosy as last year’s. Sugar prices are falling, and the Energy Information Administration is expected to revise its ethanol export projections downward in anticipation of increased production of sugar ethanol in Brazil.

In the long term, Glauber said, the ethanol industry’s expansion will be determined by “the relative prices of corn to gasoline prices and the ability for the market to blend levels in excess of 10 percent.”

Without the tax credit, the key short-term policy driver of ethanol is the renewable fuel standard, which mandates that the country produce 36 billion gallons of ethanol a year by 2022.

Critics of the standard have said it has spurred too much production of corn ethanol, driving up corn and livestock feed prices. Cellulosic biofuels, meanwhile, have limped along, lacking commercial-scale production.

Speaking at a news conference yesterday, Agriculture Secretary Tom Vilsack refuted the notion that the renewable fuel standard has caused corn ethanol to compete with livestock feed and food.

“We’ve seen increases in productivity, so we’re actually utilizing pretty much the same amount of corn that we’ve used in the past,” he said. “We’re utilizing the same amount for food production. We’re utilizing pretty much the same amount we’ve used for exports. So this excess, these productivity increases — we’ve found a home for this excess” in ethanol.

But he cautioned, “I think we all realize that this industry needs to move away from an over-reliance, or a dominance of corn, as the feedstock.” In a keynote speech at the Virginia agriculture forum, Vilsack touted USDA programs that assist biorefineries and farmers for planting switch grass, miscanthus and other cellulosic biofuel feedstocks.

Dinneen told the Florida gathering that corn ethanol producers are getting a bad rap.

“Because as we have grown rapidly over the past several years,” he said, “those who object to our industry taking more of the barrel and those who object to fair grain prices have joined together in a well-financed and highly motivated coalition against the continued growth of this industry.”