Is ethanol traffic still strong?

[Murphy Siding]

     The price of oil has to really effect ethanol.  Right now, a huge ethanol producer in my state, Verasun is heading into bankruptsy.  Yet, yesterday,  I saw a unit ethanol train through town for the first time.  (Not from Verasun, I might add.)  How is ethanol traffic for railroads?

[rrnut282]

The plant across the track has two locals serving it every day, many times both at the same time.  They sometimes spend four hours in the 8 loop tracks it has.  The plant just started producing last month, so we'll see what happens after the initial capital runs out.

[cacole]

The prices I saw yesterday for E85 and regular unleaded were only about 10-15 cents different.  A few months ago the difference was over $1 per gallon, so the incentive for people to purchase flex fuel vehicles has vanished, at least temporarily.  But car lots are choked with overstock all over the place and no one is buying, flex fuel or otherwise.

[Victrola1]

 http://www.pinelakecorn.com/

Ethanol is caught between falling oil prices and corn prices. Contract corn high and have oil go low, it does not work. To play in this market, it looks like you juggle two volatile commodities.   

[Anonymous]

I have heard some talk of adding enough taxes to gasoline to get it back up to the $4 per gal. range.  Would that help ethanol?

[ButchKnouse]

Bucyrus

I have heard some talk of adding enough taxes to gasoline to get it back up to the $4 per gal. range.  Would that help ethanol?

Of course the genius who thought of that is operating on the theory that EVERYBODY lives in the Northeast Corridor, and that anyone who doesn't like the high gas prices can just jump on a train or a bus and go anywhere they want. In this part of South Dakota, intercity bus service disappeared in the 1980s when the price of liability insurance on everything skyrocketed. There's only 1 city with city bus service and only 3-5 that even have taxis.

[jrbernier]

  Ethanol plant construction has been slowing here in the 'corn belt' - there are several projects that have announced 'delays' in existing construction or ground breaking.  We are still seeing lots of ethanol tank cars in trains though.  I think the existing production is handling the current industry demand, and the new startups are having trouble finding markets or even finding financing to fund new construction.  My 'gut' feeling is that the ethanol bubble has burst, and the investor community is not jumping to get on board with ethanol.  Last summer, wind turbine construction along I-90 was all the rage and I was hearing radio advertisments looking for 'investors' in wind energy.

Jim Bernier

 

[petitnj]

This is from August 2007. But with the rapid fall in corn and oil prices, it is not too far from today's numbers The cost of producing ethanol varies with the cost of the feedstock used and the scale of production. Approximately 85 percent of ethanol production capacity in the United States relies on corn feedstock. The cost of producing ethanol from corn is estimated to be about $1.10 per gallon. Although there is currently no commercial production of ethanol from cellulosic feedstocks such as agricultural wastes, grasses and wood, the estimated production cost using these feedstocks is $1.15 to $1.43 per gallon. Because a gallon of ethanol contains less energy than a gallon of gasoline, the production cost of ethanol must be multiplied by a factor of 1.5 to make an energy-cost comparison with gasoline. This means that if ethanol costs $1.10 per gallon to produce, then the effective cost per gallon to equal the energy contained in a gallon of gasoline is $1.65. In contrast, the current wholesale price of gasoline is about 90 cents per gallon. The federal motor fuel excise tax on gasohol, a blended fuel of 10-percent ethanol and 90-percent gasoline, is 5.4 cents less per gallon than the tax on straight gasoline. In other words, the federal subsidy is 54 cents per gallon of ethanol when the ethanol is blended with gasoline. The subsidy makes ethanol-blended fuel competitive in the marketplace and stimulates the growth of an ethanol production and distribution infrastructure. In other words, you and I pay 54 cents/gallon to the ethanol industry. With that windfall (and you thought GM is getting a hand out?) ethanol made money until oil prices collapsed. Now they are seriously in trouble, and once again the old adage is true: "if the government decides on the winner, you can bet it is a mistake".

[petitnj]

This is from August 2007. But with the rapid fall in corn and oil prices, it is not too far from today's numbers The cost of producing ethanol varies with the cost of the feedstock used and the scale of production. Approximately 85 percent of ethanol production capacity in the United States relies on corn feedstock. The cost of producing ethanol from corn is estimated to be about $1.10 per gallon. Although there is currently no commercial production of ethanol from cellulosic feedstocks such as agricultural wastes, grasses and wood, the estimated production cost using these feedstocks is $1.15 to $1.43 per gallon. Because a gallon of ethanol contains less energy than a gallon of gasoline, the production cost of ethanol must be multiplied by a factor of 1.5 to make an energy-cost comparison with gasoline. This means that if ethanol costs $1.10 per gallon to produce, then the effective cost per gallon to equal the energy contained in a gallon of gasoline is $1.65. In contrast, the current wholesale price of gasoline is about 90 cents per gallon. The federal motor fuel excise tax on gasohol, a blended fuel of 10-percent ethanol and 90-percent gasoline, is 5.4 cents less per gallon than the tax on straight gasoline. In other words, the federal subsidy is 54 cents per gallon of ethanol when the ethanol is blended with gasoline. The subsidy makes ethanol-blended fuel competitive in the marketplace and stimulates the growth of an ethanol production and distribution infrastructure. In other words, you and I pay 54 cents/gallon to the ethanol industry. With that windfall (and you thought GM is getting a hand out?) ethanol made money until oil prices collapsed. Now they are seriously in trouble, and once again the old adage is true: "if the government decides on the winner, you can bet it is a mistake".

[Anonymous]

petitnj

This is from August 2007. But with the rapid fall in corn and oil prices, it is not too far from today's numbers The cost of producing ethanol varies with the cost of the feedstock used and the scale of production. Approximately 85 percent of ethanol production capacity in the United States relies on corn feedstock. The cost of producing ethanol from corn is estimated to be about $1.10 per gallon. Although there is currently no commercial production of ethanol from cellulosic feedstocks such as agricultural wastes, grasses and wood, the estimated production cost using these feedstocks is $1.15 to $1.43 per gallon. Because a gallon of ethanol contains less energy than a gallon of gasoline, the production cost of ethanol must be multiplied by a factor of 1.5 to make an energy-cost comparison with gasoline. This means that if ethanol costs $1.10 per gallon to produce, then the effective cost per gallon to equal the energy contained in a gallon of gasoline is $1.65. In contrast, the current wholesale price of gasoline is about 90 cents per gallon. The federal motor fuel excise tax on gasohol, a blended fuel of 10-percent ethanol and 90-percent gasoline, is 5.4 cents less per gallon than the tax on straight gasoline. In other words, the federal subsidy is 54 cents per gallon of ethanol when the ethanol is blended with gasoline. The subsidy makes ethanol-blended fuel competitive in the marketplace and stimulates the growth of an ethanol production and distribution infrastructure. In other words, you and I pay 54 cents/gallon to the ethanol industry. With that windfall (and you thought GM is getting a hand out?) ethanol made money until oil prices collapsed. Now they are seriously in trouble, and once again the old adage is true: "if the government decides on the winner, you can bet it is a mistake".

 

I can understand the adage, "if the government decides on the winner, you can bet it is a mistake".

 

Obviously from a free market perspective, ethanol is a mistake.  However, since government has made ethanol possible by creating an artificial market, I don’t see why they can’t just modify that artificial market to keep ethanol happening despite a worsening of normal market conditions.  In fact if the normal market conditions get too bad, we can just replace them all with an artificial market.

[al-in-chgo]

Yes, and if Chevrolet division is given funds to survive, watch them crank out LOTS of "Flex Fuel" Impalas; there are already quite a few on the road, at least here in Chicagoland.  This is not the same thing as saying people (or car's fuel system) will appreciate the option.  (I can tell the difference here in Chicagoland between E10 and gasoline.)  A shift to E-85 will not be the swing on the stars it has been made to sound.

[Anonymous]

al-in-chgo

A shift to E-85 will not be the swing on the stars it has been made to sound.

 

What do you mean?

[The Butler]

 I've heard that MPG with E85 is lower than gas or gas+10% ethanol.  As explained to me, any savings is canceled by the use of more fuel.

[beaulieu]

 One item not mentioned yet, before 10 percent Ethanol was added to gasoline, MTBE was added to as an oxygenator, what was the cost of the MTBE and how did that affect the cost and mpg part of the equation. I know that one of the feedstocks for MTBE was Methanol.

[ButchKnouse]

beaulieu

 One item not mentioned yet, before 10 percent Ethanol was added to gasoline, MTBE was added to as an oxygenator, what was the cost of the MTBE and how did that affect the cost and mpg part of the equation. I know that one of the feedstocks for MTBE was Methanol.

MTBE was banned after it started showing up in the groundwater in California. It's very hard and very expensive to remove from the water supply. And it has too many hazardous chemicals in it.

[RRKen]

It all depends upon the producer.   VeraSun has put itself in a pickle because of a number of things.  First off, the buyout of U.S. BioEnergy.  Money costs money, and they did not have it.  Second, the corn contracts they signed.  Much to the chagrin of local farmers, they are trying to back out of those $8 a bushel contracts.   Corn is now $3.40 or so.  

 But, I look at producers, especially those who are co-ops, and find they are doing a bit better.   Why?   Some chose  not to hedge in $8 corn.  Others use alternate fuels such as coal, which reduces their costs of energy by about half.     Still, the margins are razor thin for most producers.    What to do?  Hang tough.   Examine every aspect of your operation, including marketing companies.  

 The ethanol carriage is competitive.   The big players are UP, CN, CP, and BN.   CP's predecessors, DM&E,  hitched their wagon with VeraSun.   Right now VeraSun is cramming every car that is not being used into their facilities.   They are paying big time for the leases.   And the carriers are not moving as  many loads.  

In the mean time, smaller plants are still shipping, and POET, another major player, is still moving it's product.    Units to Sewaren, NJ; Albany, NY; Linden, NJ; and Texas are still moving.    While BNSF ships units, it tends to cater to the west coast, and has to assemble it's trains (or so was my last information).   UP's philosophy is to grab the whole thing in one or two blocks, and move the train forward, no stopping or yarding.     Singles however, are still out there, and provide enough revenue to keep locals running, and terminals in business. 

Yes, the volume is down, but it is not perished.   Versus commodities like Lumber or Autos, it is a bright light on the balance sheet.    And that is the nice thing about Ag Products, if ethanol trails off, grains pick up the slack.  

[Murphy Siding]

RRKen

   Right now VeraSun is cramming every car that is not being used into their facilities.   They are paying big time for the leases.........

    ........And that is the nice thing about Ag Products, if ethanol trails off, grains pick up the slack.  

  I don't quite understand these two statements.  They're cramming the cars into their facilities to avoid paying per diem on another road?  I wonder how bankruptsy affects car leasing.  If ethanol trails off, does the grain then ship out instead?

[RRKen]

Murphy Siding

  I don't quite understand these two statements.  They're cramming the cars into their facilities to avoid paying per diem on another road?  I wonder how bankruptcy affects car leasing.  If ethanol trails off, does the grain then ship out instead?

Since they are not producing, they are not loading, yet empties are still streaming back from customers,    they have to squeeze  them in to the plants.   Most all their (VeraSun) plants here are shut down.  Charles City, Welcome, Dyersville, Janesville, and maybe Hartley. 

I have no idea exactly how the lease works with the bankruptcy proceedings, one can assume they still pay.   

  If a plant is not producing,  the elevators holding any grain will find another buyer instead of sit on the grain.    The name of the game is the grain goes to the highest bidder.   For example, Joice elevator is sitting on six or seven units worth of corn (that's about 1.8 million bushels worth about $5.94 million give or take).   They're neighbor at Hanlontown is still in production, so I am sure some of it will end up there.  

Up in Welcome, Wantonowan Elevator was banking on VeraSun to be in production.   Since grain storage costs money, Wantonowan will have to make a decision, wait and hope, or sell.  The stuff in ground storage cannot sit there very long.  

[RRKen]

Last week, four unit trains run.  Three showing this week.  Lots of singles too.   That keeps people employed and the economy running.   Can you say that about lumber traffic?  Autos?   Consumer goods?   While other terminals are contracting, we are holding our own.  

[Lake]

 I have a strong feeling that regular gas will be over $2.00 by mid year and closer to $3.00 at years end. So it may be just a matter of getting through 2009 for ethanol producers, using any means to hold on for a while.

Ken

[cacole]

The Butler

 I've heard that MPG with E85 is lower than gas or gas+10% ethanol.  As explained to me, any savings is canceled by the use of more fuel.

One gallon of E85 produces less power and less mileage than pure gasoline or a 10% Ethanol mix.

Statistics I have seen indicate that it consumes more energy to produce a gallon of Ethanol than the amount of energy it yields when used as a motor fuel.

But there is a very strong lobby of Ethanol producers in Washington that keeps pushing for more and more Ethanol production and Government price controls or subsidies.