By Mike Brown, president, National Chicken Council
Agriculture Secretary Tom Vilsack this week announced that 21 states will receive grants to build nearly 5,500 gas pumps and other infrastructure to allow the sale of higher level blends of ethanol such as E-15 and E-85.
These grants will be matched by the states. The states receiving the funds are Colorado, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Michigan, Minnesota, Missouri, Nebraska, North Carolina, North Dakota, Ohio, Pennsylvania, South Dakota, Texas, Virginia, West Virginia, and Wisconsin.
The announcement by the Secretary underscores the tenuous situation that ethanol production is in currently.
While it is true that lower gasoline prices have spurred more driving, which increases overall fuel use and thus lessens the blend wall limits on ethanol, there is a bearish side for ethanol too. With gasoline prices low, the only thing ethanol manufacturers can count on for demand is the RFS mandate.
Indeed, ethanol is now more expensive than gasoline. So far in September, the nearby October contract for ethanol futures has been steadily trading above unleaded gas futures. There is no incentive to blend a drop more ethanol than the RFS prescribes. That is why the ethanol industry is seeking these additional grants and preferences from USDA and the States in order to further subsidize their gain of market share for both fuel and consumption of corn.
With oil prices at their lowest level in more than six years, there is considerable pressure on ethanol margins for mills outside the corn belt. Those ethanol mills close to feedstock in the corn belt are enjoying the increase in fuel demand, but others are feeling the squeeze on their margins. Two plants have closed this month – one in Wyoming and one in Virginia. More such poorly positioned plants may follow, or may, at least, run well below capacity. The new grants for increasing the volume of E-15 and E-85 are ethanol’s attempt to stem the bleeding that is now occurring in the industry.
