Ethanol Tax Break Could Be Removed By End Of Month
08/07/11 -- Three high profile US senators have reportedly struck a deal that could see the controversial ethanol blenders 45c/gallon tax break withdrawn by the end of the month. In addition the 54 cent duty on imported ethanol would also be removed, potentially opening up the door for sugarcane-derived ethanol imports from Brazil.
The senators are trying to push the proposal through before Congress adjourns for the August recess. All it needs now is Obama's signature.
The incentive of slashing billions straight off the budget deficit bottom line may seal the deal.
The corn market thus far seems remarkably relaxed about the whole thing considering that 40% of US production now goes to make ethanol. Of course the Renewable Fuel Standard (RFS), otherwise known as the ethanol mandate, still remains in place but with the import duty also removed we could see a significantly larger proportion of this now being taken up by ethanol from international sources.
Pulling The Plug On The Corn Gravy Train
31/03/11 -- Just as the USDA seem set to announce the second largest US corn plantings since the war, there are suggestions that the existing 45c/gallon tax break enjoyed by US ethanol producers may not get extended at the end of 2011.
This little ruse, set up as part of the 2004 Jobs Creation Act, cost US tax payers USD5.4 billion in 2010, according to this report Laughing all the way to the bank. The US ethanol industry trumpets that it directly employs more than 70,000 American citizens.
Contentiously, they could remove the tax break entirely and pay each one of those employees a USD75,000/year salary to simply sit on their arses and still have change left over.
Not much of a vote winner for Obama in the Midwest that idea though is it?
Elsewhere though the anti-subsidy lobby is gaining support from some high profile players: Senator Webb Cosponsors New Bill To Repeal Corn Ethanol Subsidy, Reduce Ethanol Tariffs
Meanwhile, leading agricultural expert David Pimental of Cornell University says that 70 percent more energy is required to produce ethanol than the energy that actually is in it.
Today's "Must Read"
20/10/10 -- US ethanol producers are shaking like an MFI wardrobe in a force nine gale over the prospect that their long-standing 45c/gallon handout from the government, due to expire at the end of the year, might not get renewed.
"I think it would be very irresponsible to take away an incentive overnight," bleats the head of one leading US ethanol producer. I bet he bloody does.
Which is somewhat akin to "Funds not to blame for pushing up grain prices" - Fund manager.
It's not about the money, honest. We're trying to save the planet here for Christ's sake
Yet More Trouble In The US Ethanol Sector
It seems like hardly a month goes by without one or more US ethanol producer getting into trouble these days.
Hot favourites to be next through the door to file for chapter 11 bankruptcy protection are Aventine Renewable Energy. Aventine reportedly has a $15 million interest payment due on 1st April to its engineering and construction contractor, Kiewit Energy. The company says at the moment it doesn't have the capital to make the payment.
Unless and eleventh hour rabbit comes out of the hat via a refinancing package the company may be forced into chapter 11 protection.
“There is substantial doubt as to our ability to continue as a going concern,” the company said in its annual report filed with the Securities and Exchange Commission. “We need additional financing or capital which may be unavailable or costly.”
And Aventine isn't the only alternative energy company in trouble. An auditor for cellulosic ethanol maker Verenium said in a filing Monday that the biofuels company may have to “curtail or cease operations” if it cannot raise additional capital.
With US companies dropping like flies, I wonder if there are any parallels to be drawn within our own European renewable fuels sector?
Corn Ethanol: A Health Warning
Switching from gasoline or corn-based biofuels to cellulosic ethanol--made from the stalks and stems of plants--could have more health and environmental benefits than previously recognized, according to this report:
Chuck another cob on
Another US Ethanol Plant Fies For Bankruptcy
There can't be too much of this house built out of a pack of cards left to fall can there? Renew Energy LLC, operator of a year-old ethanol plant in Jefferson, sought protection from creditors in U.S. Bankruptcy Court Friday. The company listed debts of up to $500 million.
Another US Ethanol Producer Files For Chapter 11
Another US ethanol producer has filed for chapter 11 bankruptcy protection in the US Bankruptcy Court for the Northern District of Texas.
Hereford Biofuels, a subsidiary of Panda Ethanol, who's major asset is a 105 million gallon ethanol facility still under construction in Hereford, Texas, filed for chapter 11 Friday.
Panda Ethanol said it is in negotiations with a buyer for the Hereford plant, and it hopes to complete a sale within 90 days.
Construction of the Hereford facility began in August 2006, but has been dogged by construction problems, culminating in Panda terminating Lurgi Inc. as its general contractor in September 2008.
VeraSun Reveals Only Four Of It's Plants Are Operational
If ever you wanted further proof that the US ethanol industry is an entire pack of cards waiting to collapse then here it is.
VeraSun, which is, or rather was, the second largest US ethanol producer says that only four of it's sixteen US plants are operational. The other twelve are all what VeraSun calls "hot idle" - ie not operational. Shut is one way of putting it, but hot idle sounds kind of sexy doesn't it?
"Hey Chuck, we're hot idle here & just waiting for the word to set this baby rolling."
"As soon as oil goes back up, corn prices come down, they double our tax break and Obama single-handedly turns the world economy round we're ready to go."
Another US Ethanol Maker Files For Chapter 11
Northeast Biofuels became the latest firm in the troubled US ethanol industry to file for Chapter 11 bankruptcy protection Thursday.
The company's 100 million gallon plant in Fulton, New York has suffered design flaws and construction delays, leaving it unable to make debt repayments.
Northeast Biofuels becomes the latest casualty in the industry over the last twelve months along with VeraSun Energy, the largest publicly traded ethanol maker, Greater Ohio Ethanol, Gateway Ethanol and Beatrice Biodiesel having also filed for bankruptcy.
US Ethanol Plants Dropping Like Flies
VeraSun Energy Corporation, the second largest US ethanol producer has idled three plants with a collective production capacity of 330 million gallons pa.
The plants at Bloomingburg, Ohio; Albion, Nebraska; and Linden, Indiana were idled in late December after corn prices rose and end-product prices stagnated with crude oil at $40/barrel. The company said that there is no estimate on when plants would resume operations.
Pacific Ethanol Inc. announced last week that it was suspending output at its plant in Madera, California. On Jan. 7, Aventine Renewable Holdings Inc. said it had halted construction of its refinery in Aurora, Nebraska. In December AltraBiofuels Inc shut production at its plants in Cloverdale, Indiana, and Coshocton, Ohio.
This is yet another indication of how frail the US ethanol industry is, with the cost of production outstripping selling prices, even with the government's 45c/gallon tax-break that ethanol producers enjoy.
Lately the industry, through the Renewable Fuels Association (RFA), pleaded for a bailout worth a billion dollars in order to sustain current projects. Furthermore, RFA suggested that the forthcoming Obama-administration should come up with a $50 billion federal loan guarantee programme to attract more investment in the ethanol industry.
VeraSun filed for chapter 11 bankruptcy protection at the end of October, and has subsequently incurred the wrath of US farmers by defaulting on corn purchased at substantially higher prices than the current market.
Another US Ethanol Plant In Trouble
The Husker Ag ethanol plant at Plainview, Neb., has 'temporarily' shut down, citing volatile commodity markets.
The plant isn’t accepting corn deliveries until further notice and will use the down time for repairs and maintenance.
The shutdown will be used to work out arrangements with corn suppliers and the plant’s lender because of the high cost of corn contracted for 2009 delivery, according to a news release from Husker Ag.
Farmers holding contracts with Husker Ag were reportedly asked by the company Monday to consider agreeing to unsecured notes at 5 percent over five years to help the plant get back on its feet.
Is VeraSun Decision Another Nail In The Coffin For US Ethanol?
US corn growers are angry with VeraSun's decision, backed in court this week by US Bankruptcy Judge Brendan Shannon, to cancel contracts to buy corn through to Jan. 15 at seven of it's sixteen US plants. The company has also said it will cancel through to the end of Jan. at an eight plant.
Certainly, any farmers with corn sold to VeraSun at substantially higher levels than today's rates are going to be hopping mad. But the knock-on effects could have wider implications for the entire ethanol industry.
"This really has a lot of farmers upset," said one analyst. "What it is doing is creating a climate of distrust among farmers with ethanol plants because VeraSun is not the only organization that manufactures ethanol that is having difficulties right now."
Could this be the beginning of the end for the US ethanol industry? It could certainly be a factor in helping farmers with their planting decisions next spring. What's the point of growing corn? Inputs are way higher than soybeans. The market for crude oil has fallen out of bed. Gas at the pumps is cheaper without any ethanol blend than with. And if you do sell to an ethanol producer and the price comes down then they can just cancel the contract.
What would you do?
Now Here's An Interesting Development
The entire global picture has changed since the US introduced it's mandate to mix ethanol with gasoline. The country currently blends 9 billion gallons of the stuff with regular gasoline which is then sold at the pumps nationwide.
Quite a few things have changed since this mandate was introduced. The price of oil has shot up to an all-time high, then fallen back to a three year low. The price of corn has also shot up to an all-time high in excess of eight dollars/bushel, before also falling back to a more normal $3.50/bushel.
Then of course we have the credit crunch, slumping economies and rising unemployment. We have a US government throwing $800 billion at the economy to try and get it back on it's feet.
One way to help of course if by lower fuel prices. Step into the spotlight Missouri.
Missouri gas retailers have been selling gasoline without any ethanol blended into it for several weeks now, according to reports. And guess what? Gasoline in Missouri is the cheapest in the whole of the US, with prices as low as $1.33/gallon on Wednesday, compared to a national average of $1.89/gallon. That's a saving of almost one third.
What's so different about Missouri? State law allows retailers to sell straight gasoline with no ethanol mix IF that is cheaper than a blended fuel.
With ethanol currently asking up to $1.70/gallon and straight gasoline nearer $1.00/barrel it's a no-brainer.
An interesting conundrum for fiercely pro-ethanol Barak Obama when he takes office in January. Waiving the ethanol mandate on a national level might accelerate the economic healing process, whilst going against Obama's environmental principles.
The Cheeky B@stards
Not content with getting a 45c/gallon tax-break for everything they produce, US ethanol makers are now imploring the US government to tie any potential bailout of the US auto industry to the increased production of ethanol-friendly vehicles.
Describing the proposed bailout as "probably a good thing," Robert Dineen, the president of the Renewable Fuels Association, went on to ask for more: "How about a more specific commitment to flex-fuel vehicles" or "some additional infrastructure for e-85 (a high-ethanol blend fuel)?"
How about you make you industry stand on its own two feet Mr Dineen?
I thought I saw his name on the side of a loaf of bread in Asda yesterday, then I realised I didn't, it just said Thick Cut.
Pacific Ethanol: These Boys Sure Know How To Lose Money
Pacific Ethanol, Inc. have reported a net income loss of $54.9 million for the third quarter, ended Sept. 30, a near 1150% increase compared to a loss of "just" $4.8 million during the same period last year. The firm blames the volatile price or corn.
The losses came despite increasing sales volume by 15 million gallons, or 30%, to 65 million gallons, compared to 50 million gallons for the same period in 2007. In addition the company reported a net sales increase to $184.0 million, a 56% increase over $118.1 million during the same period in 2007.
Earlier this month, VeraSun Energy, the largest publicly traded ethanol maker, filed for Chapter 11 bankruptcy protection, citing similar problems to those experienced by Pacific Ethanol, while Greater Ohio Ethanol, Gateway Ethanol and Beatrice Biodiesel have also filed for bankruptcy this year.
If ever you needed a clearer picture of the foolhardy nature of the heavily subsidised ethanol-from-corn business failing to cut the mustard then this is surely it. Despite the tax-breaks, this industry is still built on a pack of cards that simply can't cope with the fluctuations in price of it's raw material. Corn.
Remember too, these losses came with crude reaching $147/barrel and petrol, sorry gas, at the pumps in the US exceeding $4/gallon. Imagine if you will, taking the 45c tax break that ethanol qualifies for off these figures, if that was to suddenly be rescinded. That makes the bottom line for this quarter alone almost $30 million worse!
Shares in Pacific closed at 79 cents last night, they were almost $10 less than a year ago.
US Cattlemen Attack USDA's Loan To Ethanol Plants Plans
The National Cattlemen’s Beef Association (NCBA) has hit out at USDA moves to support the ethanol industry over corn prices.
The NCBA has sent a letter to USDA Secretary Ed Schafer expressing disappointment at comments he made in outlining Rural Development assistance for ethanol plants hurt by the high corn prices.
The NCBA says that in remarks made in Des Moines last week Secretary Shafer said: "There's going to have to be some credit applied to companies to buy some lower-priced corn to blend with their higher-priced corn."
"These higher corn prices are due in large part to extensive federal subsidies for the ethanol industry. The plants in question hedged on the futures markets and are now seeing the consequences of risky business decisions," said Andy Groseta, NCBA President.
However he added that Secretary Schafer acknowledged the questionable business practices, saying, 'There is some pressure out there by companies that have gotten away from their focus on producing ethanol and started speculating on the commodity markets, and that's hurt them.'
"Cattle producers, meanwhile, have been facing the hard realities of rising corn prices for quite some time, and have suffered a record $1.5 billion in cattle feeding losses in just the first six months of 2008," Mr Groseta said.
"In the letter sent to Secretary Schafer, NCBA explained that over the past two years, 'producers have seen their operating costs dramatically increase due to government support of the corn-based ethanol industry… These costs are now contributing to lower calf and feeder cattle prices.'
"Much has been made of the importance of ensuring energy security for the United States, which is a worthy objective and one the membership of NCBA fully supports.
"However, continuing to subsidize the ethanol industry at the expense of other agricultural sectors risks our food production capacity. While energy independence is an important goal, it must be balanced with one of our strongest suits: our ability to feed Americans and the world.
"Corn-based ethanol is a mature technology that should be able to compete on the open marketplace without government intervention to prop it up. While we appreciate that the funds in question are not new money or exclusively available to biofuel plants, the ethanol industry's need for increased funding after years of subsidies highlights an underlying fault in USDA's approach to food and fuel policy.
"America's cattle producers are not asking for a bailout, but we do ask for the chance to compete for corn and commodities on a level playing field, without further government intervention."
US Ethanol Plant Bankrupt After Just 3 Months Of Production
The operator of a US ethanol plant in northwest Ohio is filing for bankruptcy protection.
The president of Greater Ohio Ethanol blames the current credit crunch and a flaw in the design of the plant near Lima, Ohio.
Gregory Kruger says the design flaw forced the plant to use much more water than planned, causing the company's water bill to go up much more than they expected.
The plant only began production in July after months of delay.
Is The Writing On The Wall For US Ethanol From Corn Industry?
Shares in US ethanol manufacturers took a pasting on Wall St Wednesday as they struggle with volatile corn prices and struggle with cash.
A couple of years ago ethanol from corn was seen as the golden child. "I'd rather have corn farmers growing energy rather than import oil from countries that may not like us - that's how I view it," said Bush, famously, or should that now be infamously?
Investors were throwing money into companies setting up new ethanol plants like it was sure-fire certainty. Suddenly, things don't look quite so rosy.
If you aren't even sure which bank you can trust with your money, then you certainly aren't going to put it into an industry totally reliant on government tax breaks to survive are you?
Where competition from the likes of Brazil and it's far more efficient and rapidly expanding ethanol from sugar-cane industry amkes your investment look pretty unrealistic?
Alfred Szwarc, director of Brazil's Sugar Cane Producers' Association, said this week that his country will open 25-30 new ethanol from sugar cane plants this year.
Brazil will see ethanol output rise 27% to 24.3 billion litres from the 2008/2009 harvest, Szwarc added.
In the US, Aventine Renewable Energy Holdings said Wednesday that it would seek to issue new debt and shares to shore up its cash position, or it would have to delay construction of some plants, it's shares fell 22 percent to $3.94 in afternoon trade.
VeraSun Energy has got it's corn bought on the wrong side of the market. It warned this week of a much larger-than-expected quarterly loss. Its stock plunged 72 percent to just one dollar Wednesday.
VeraSun says it expected a third-quarter net loss of $63 million to $103 million, far higher than the $2.4 million loss analysts had forecast.
VeraSun is issuing 20 million shares as it's stock trades at new lows, which analysts noted was "not something most companies would normally want to do."
Denver-based BioFuel Energy Corp were also in trouble Wednesday with it's shares down 31 percent. It has also got caught on the wrong side of corn trades and said last month it did not have the liquidity to meet $26 million in hedging losses.
Obama Backs Ethanol Mandate
Democratic presidential nominee Barack Obama told farmers this week that he backs the federal requirement to use ethanol as a way to reduce reliance on oil imports.
The alternative fuel, distilled mostly from corn, is popular in farm country, particularly the U.S. Midwest. But sky-high grain prices and rising food prices have led to suggestions to relax the so-called renewable fuels standard.
Federal law calls for use of 9 billion gallons of ethanol as motor fuel this year.
A week ago, the Republican National Convention called for an end to ethanol mandates, in line with the views of its nominee, John McCain.
"I've long been a strong supporter of the RFS," Obama said during a brief telephone call to members of the National Farmers Union. "I am strongly committed to advancing biofuels as a key component of reducing our dependence on foreign oil."
Another US Ethanol Producer In Trouble
Two months after opening an ethanol plant in Fairmont, Minn., Buffalo Lake Energy has been foreced to access to a $20 million line of credit from its parent firm to keep its furnaces burning.
The price of corn, at nearly $6 a bushel, is more than 2 1/2 times higher than when the Buffalo Lake Energy plant was announced in 2005.
Meanwhile in a government filing Friday, BioFuel revealed it had lost $39 million on hedging and related financial agreements with Minnetonka-based Cargill, Inc.
"Cargill has not yet been paid for approximately $22 million of these amounts," BioFuel said in a report to the Securities and Exchange Commission.
"The parent company currently does not have sufficient liquidity to retire these obligations," said BioFuel, whose subsidiaries operate the Fairmont ethanol plant and another in Wood River, Neb.
"The operating subsidiaries have received approximately $25 million of parent company corn inventory that it has not been reimbursed for," the company disclosed.
BioFuel said talks with Cargill aim to find a solution to the problem. "However, there can be no assurances that these efforts will prove successful," it said.
