Green Plains Renewable Energy INC. (GPRE)

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Ethanol Exports Could Double In 2011 - GPRE

http://wallacesfarmer.com/story.aspx/ethanol/exports/could/double/in/2011/9/47467

Chief executive of Green Plains Energy says U.S. exports of ethanol could double this year from the 400 million gallons that were exported in 2010. He says high sugar prices have Brazil looking at importing foreign-made fuel ethanol.
Compiled by staff
Published: Mar 16, 2011

Exports of U.S. ethanol could double this year from the 400 million gallons exported in 2010. In 2010, the amount of U.S. ethanol exported was four times the amount in 2009. Todd Becker, chief executive officer of Green Plains Energy, which operates three ethanol plants in Iowa and is based in Omaha, says high sugar prices in Brazil are a factor, as are high petroleum prices worldwide. Canada is the leading importer of U.S. ethanol, followed by the Netherlands, United Kingdom, India and United Arab Emirates.

"We've seen expressions of interest from Brazil, where the sugar market is going to make it difficult for that nation to meet their domestic demand," says Becker, whose company operates plants at Shenandoah, Superior and Lakota in Iowa and other ethanol plants in Indiana, Michigan, Nebraska and Tennessee.

Selling U.S ethanol to Brazil could be tricky. The U.S. maintains a tariff on imported ethanol that Brazil has protested. Becker says Brazil would be a promising market for U.S. ethanol. Brazil produces its ethanol from sugarcane, whose prices have soared in the past year.

Ethanol producers will need these export markets

Ethanol producers in the U.S. are likely to need export markets in future years as U.S. producers reach the 15-billion-gallon limit for corn-fed ethanol under federal renewable fuel standard limits. "Ethanol is the low-cost fuel worldwide," says Becker, "and as the price of crude oil and gasoline rises, there will be more worldwide demand."

Ethanol in the U.S. is currently selling for about $2.50 per gallon, roughly 50 cents per gallon below wholesale unleaded gasoline prices.

Expansion of U.S. ethanol export markets might be a necessity this year because of overcapacity, says Monte Shaw, executive director of the Iowa Renewable Fuels Association. "If we don't export more, plants will shut down," he says. "We're at full market capacity right now."

U.S. has reached the "blend wall" with E10 ethanol

The 13 billion gallons of ethanol produced in 2010 pushed the industry to the "blend wall" limit of 10% of the 130 billion gallons of gasoline consumed annually in the United States. Expansion of the legal blend limit of ethanol from E10 to E15 was approved by the U.S. Environmental Protection Agency last year, but that approval of the 15% blend is expected to have minimal impact on demand because of lack of retail pump capacity.

To get fuel retailers to switch from selling the E10, or 10%, to the E15, or 15%, blend of ethanol with gasoline, it's going to take a financial incentive to offset the cost of switching. Federal funding to provide cost-share money to get stations to install blender pumps and tanks to handle the 15% blend has been proposed. But with the budget cutting mood in Congress these days, such legislation remains stalled.

Oil prices boost ethanol, demand is strong for corn-based fuel

Crude oil prices last week rose to a 33-month high of $105 per barrel, but there's a silver lining for Iowa: The rising crude oil price is helping keep demand for corn-based ethanol strong, which is good for Iowa's ethanol industry.

Becker says, "We've seen our margins widen nicely in recent days. That's good news for an industry that's been battered and some people thought would die after corn prices doubled in the last half of 2010."

Since December, the rise in the price of crude oil has driven the wholesale price of regular gasoline to $3 per gallon. That prompted the price of ethanol to rise from $2 per gallon in December to $2.59 per gallon last Monday. The lower price of ethanol gives oil companies extra incentive (beyond the federal renewable fuels mandates) to purchase ethanol to blend with unleaded gasoline.

The economics have been keeping demand for ethanol strong

Those economics have kept the demand for ethanol strong, and helps keep Iowa's 40 ethanol plants producing at full capacity. Of the 13.2 billion gallons of ethanol produced in the U.S. last year, 3.5 billion gallons came from Iowa, the nation's leader ethanol producing state.

What worries ethanol producers is the tight supply of corn, which is in the tightest supply in the U.S. since the mid-1990s. Becker says if U.S. farmers don't produce a bumper corn crop in 2011, the ethanol industry could find itself in a serious supply crisis by fall. "Most plants will get through the second quarter of this year alright," he says. "But a lot of them are very nervous about the third quarter. We could see some plants shut down."

If corn supply problems occur later this year, it could coincide, oddly enough, with a slump in demand for ethanol. "We're already pretty much at the blend wall," says Monte Shaw of the Iowa Renewable Fuels Association. He's referring to the 13 billion gallons of ethanol production nationally, up 28% from 2009. Although the U.S. Environmental Protection Agency has raised the blend limit to 15% in gasoline, the lack of enough "blender" pumps at retail gas stations is thought to probably delay much use of E15 for up to two years. "We'll see a little E15 sold by the end of this year, but not enough to make a difference," says Shaw.