I grew up on a farm. I went to ag school and received an agribusiness degree. I’ve spent much of my career in positions related to agriculture. My parents now in their 80s still farm. Yes, agriculture has been good to me. This is only to state, I’ve followed agriculture as much out of curiosity as heritage. Therefore, you might find my critical view of the biofuels marketplace misplaced. So be it. In recent weeks I’ve noticed that the corral around the biofuels industry is getting a little smaller and a little tighter. This is in contrast to 5-years ago when everything biofuels was the rage. For instance, in recent weeks pork producers announced that their industry has lost $3.0-3.5 billion dollars due to increased costs of feed inputs due to ethanol production . The grocery trade association continues to weigh in that subsidizing ethanol is bad policy. Various scientific and environmentalist groups are giving the thmbs down to maize based ethanol.
In recent years, the biofuels industry has made significant strides in improving the economics of producing ethanol. Conversion rates are up and water consumption to produce a gallon of ethanol - down. And for the time being, Washington DC and President Obama appear to be on board with maintaining the current subsidy program. Yet despite this, the biofuels industry is in tough financial shape. Various ethanol entities, some corporate and some cooperatives, are facing dire financial operating performance. Many projects have been mothballed and numerous facilities are in bankruptcy. Yes, $50 a barrel oil is tough competition.
What does all of this mean?
First, ethanol has run a parallel life to home ownership and the mortgage industry. For all intents and purposes, the ethanol industry resembles that of a bubble industry. Two, investors willing to reinvest in this industry have dried up, and are unlikely to return anytime soon. Third,ethanol will likely find reduced consumer acceptance if additional bad news enters the marketplace. Yes, I believe the ethanol/biofuels industry is fighting for survival, and may be one they may not win. Only time will tell.
