KANSAS CITY, Mo. – Persistent high corn prices have had a negative effect on ethanol profit margins, said Tim Statts, vice president of risk management for Schneider Electric, Louisville, Ky., but he sees no signs ethanol production won’t stay robust, despite the “circular effect” of ethanol moving corn prices higher while those same prices erode ethanol’s profitability.

“Since the creation of the ethanol mandate, corn prices have done nothing but go up,” he said. Despite those prices ultimately helping drive grocery store prices higher and incurring the dismay of livestock producers, “ethanol is not going away,” Statts contended.

But there is a limit to how much ethanol may be included in petroleum formulations. Corn ethanol may have reached a “blending wall,” where the biofuel may constitute at most 15 percent of a gallon of gas at the pump or it will compromise vehicle performance, he said. AAA, which has a large auto insurance arm, has called on the Obama administration to make sure a strict limit is maintained on ethanol’s percentage in blended products, Statts said.

“More than about 15 percent and older cars don’t work,” he said.

Despite complaints from the livestock industry that wants cheaper feed, “Obama has indicated he is a fan of alternative energy options and ethanol fits into the ‘let’s be green’ idea,” Statts said.

He added that anything that allows the United States to consume less global oil and to be “less reliant on those dastardly countries that produce oil is going to be the trump card politically.”

Statts said expensive corn, which to some extent drives up the price of ethanol, may have the effect of spurring technological research and investment in more forms of ethanol production. He mentioned sugar-based ethanol from Brazil as being “potentially more efficient than corn ethanol” as long as its manufacture is financially viable.

Cellulosic ethanol, which uses materials such as wood chips, has never been marketable. Statts said that may be because it will never be feasible. On the other hand, technological advances, as well as higher prices, may eventually engender usable cellulosic ethanol, as has happened with other energy innovations.
Statts said that in the realm of petroleum, high prices and technology advances have made hydraulic fracturing a viable method for extracting resources from the earth, even though the method was first developed as far back as the 1970s and took decades before it was profitable.

Statts will be speaking about the energy market at the 36th Annual Sosland Purchasing Seminar in Kansas City on June 3–4. To learn more about the event and register, visit www.purchasingseminar.com.