Clouds hover in ethanol sky

Even as fuel benefits rural areas, corn farmers shy away from its volatility

Gargi Chakrabarty

Published December 22, 2007 at 12:05 a.m.

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Photo by Matt McClain / The Rocky

Art Gray of DATS Trucking Inc. unhooks his tanker truck after filling it with an ethanol and gasoline mix this week at Suncor Energy in Commerce City, which stores ethanol brought in from area plants.

Photo by Matt McClain / The Rocky

Flex-fuel vehicles sit on the show lot at Len Lyall Chevrolet in Aurora. While ethanol is less expensive and emits fewer pollutants than unleaded gasoline, it doesn't go as far, says Brian Anderson, who uses E85 in his 2007 Chevy Suburban.

Photo by Matt McClain / The Rocky

Mary Beth Gallagher, of Aurora, fills up her flex-fuel vehicle this week at the Phillips 66 on East Hampden Avenue. Colorado now has 50 gas stations that sell E85 - a fuel blend of 85 percent corn ethanol and 15 percent gasoline.

Photo by Matt McClain / The Rocky

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LAST IN AN OCCASIONAL SERIES

Brian Anderson checked out the display board after pulling up to an E85 pump in his mud-splattered Chevy Suburban.

The gas station at 15201 E. Hampden Ave. in Aurora was selling the fuel blend - 85 percent corn ethanol and 15 percent gasoline - at $2.09 a gallon last Saturday. That was considerably cheaper than regular, unleaded gasoline at $2.67 a gallon.

That ethanol emits fewer pollutants when burned adds to its appeal. Only certain newer cars are engineered to use the blend.

Anderson decided to fill up, not so much for the savings or lower emissions, he said, but because he would like to support the fledgling fuel. His decision also has a downside.

His big Chevy gets only 10 miles per gallon on E85, compared with 14 miles per gallon on regular gasoline, with its higher energy content. Ethanol is less expensive, but it doesn't go as far.

"I don't think E85 saves me any money, unless it is a dollar cheaper than gas. But I buy it," said Anderson, a 33-year-old union pipe fitter from Aurora. "I like to keep the money in town."

No doubt, ethanol has its fans, including a very important one.

On Wednesday, President Bush signed an energy bill that requires the production of 36 billion gallons of renewable fuels by 2022. That's nearly five times the current ethanol production level.

"We make a major step toward reducing our dependence on oil, confronting global climate change, expanding production of renewable fuels and giving future generations a nation that is stronger, cleaner and more secure," Bush said.

Ethanol, derived from domestically grown corn, has firm roots in the Colorado economy.

The fuel pumped into Anderson's Chevy likely was fermented at Yuma Ethanol, a new plant in Yuma, which is east of Fort Morgan. It then was transported to Denver for blending with gasoline before being trucked to the gas station. The plant and another one in Sterling buy corn from area farmers, who in turn buy seeds and fertilizers from local dealers.

The linear chain of ethanol production not only benefits Yuma County's corn farmers, including the Lenz and Rutledge families, who enjoyed record crops and robust prices this year, but also made money for downstream businesses such as Yuma Ethanol, ethanol marketers, fuel blenders and local retailers, including the Aurora gas station.

The Lenzes, along with other local farmers, also invested in building Yuma's $61 million ethanol plant, banking on the fuel's increasing popularity. Brett Rutledge chose to stay away from what some derisively refer to as the "dot-corn" rush, likening it to the dot-com boom and bust.

As it happens, there are dark clouds hovering over ethanol.

In past months, news reports have suggested ethanol might be headed for a bust, with the Chicago spot price of the fuel falling sharply, more than 22 percent from January through mid-November.

The Lenzes hope to earn dividends from Yuma Ethanol in two years, but for now, they have decided not to invest in any more distilleries. (They have stakes in more than a half-dozen ethanol plants.) Instead, they are looking to invest in wind energy, and talks are on with other farmers to start a wind farm next year.

"Ethanol is getting consolidated and squeezed. Profits are certainly not there today," said Rod Lenz, 52, the third-oldest among the four Lenz brothers who, along with their father, George, run the farm. "We have invested enough in ethanol. It could still be a good investment, but it is so volatile - which plants are good, which ones have good management, which stock is good, all those questions need to be answered."

Rutledge says he will continue to shy away from ethanol investments, although he concedes the Yuma plant has created well-paying jobs and increased activity in the local economy.

He says the oil companies, which typically buy ethanol from marketers and blend it into E85 or E10 (a mix of 10 percent ethanol and 90 percent gasoline used during winter months) will dominate the industry, shouldering out smaller investors, including farmers.

Rutledge says he's making plenty of money on corn, as it is.

"I like investing in my own business, something that I know, rather than go out of my comfort zone," the 40-year-old farmer said. "And I'll put money in my kids education."

Motorists like Anderson initially didn't pay much attention to ethanol, partly because of its limited availability.

Of the more than 170,000 gas stations in the nation, only 700 sell E85. Colorado had a mere 13 such pumps earlier this year, but since has jumped up to 50 statewide, buoyed by financial incentives from Gov. Bill Ritter's administration.

Anderson said he started considering the fuel when it became much cheaper than gasoline. In May, E85 was about $1 cheaper per gallon, but last Saturday the differential stood at only 58 cents.

Anderson decided to stick with it. His 2007 Chevy Suburban is a flex-fuel vehicle, or FFV, which can run on both fuels.

"It's not a great deal today," he said, putting the nozzle back on the pump after the tank was fully loaded, "but still cheaper to fill."

A boon for rural areas

Proponents of ethanol point to its economic impacts that have rejuvenated rural areas, vaulting thousands of farmers into profitability.

Since Yuma Ethanol opened this fall and another identical plant began operations in November 2005 in Sterling, 40 miles north, Yuma has seen a resurgence of sorts. Stable jobs are luring young people back into the community fold, and the money earned is circulating locally.

E85 is a new ending to a very old story: corn farming on the high plains.

Farmers in Yuma County, Colorado's No. 1 corn producer, planted in May. The crop withstood hailstorms and a freeze late in the month and soaked up sporadic bursts of heavy rain in summer.

Giant combines rumbled across the fields in early October, chopping and shelling the cobs, spewing a rainbow of golden kernels into bins and trailers to be hauled by truck to the new plant in Yuma or into storage for later production. At Yuma Ethanol, the kernels were crushed and fermented, converting sugar to ethanol, which is then denatured. The distillery sold its product to agri-giant Archer Daniels Midland, and ADM transported the fuel via trucks and rail 144 miles west to the outskirts of Denver.

ADM considers its blender client list proprietary, but metro-area blenders include Frontier Oil and Suncor Energy. The blenders mix ethanol with gasoline in various ratios for blended fuels, including E85.

Suncor, which owns Colorado's two oil refineries in Commerce City, sells E85 to retailers such as Pester Co., which has nine E85 pumps across the state, including four in the metro area.

Pester installed the E85 pump earlier this year in the Aurora gas station where Anderson filled up.

Fuel instead of food

Ethanol boosters say it benefits the nation by helping reduce dependence on foreign oil.

In 2006, the ethanol industry supported the creation of more than 160,231 jobs in all sectors of the U.S. economy, boosting household income by $6.7 billion, according to the Renewable Fuels Association.

The fuel got a huge boost this week with the signing of the federal energy bill. Ethanol blenders already enjoy a 51 cents-a-gallon tax credit, and there's a 54 cents-a-gallon tariff on imported ethanol.

Anticipating the ethanol market's growing demand for corn, farmers this year planted the most corn in the United States since World War II.

Harvest is estimated to be a record 13.05 billion bushels, 24 percent more than last year, with final numbers due next month. Plentiful corn might reduce the operating cost of the nation's 135 ethanol plants, including five in Colorado. Seventy-four more plants are in the works nationwide.

By 2012, ethanol production is projected to use up one-third of the nation's corn crop. Colorado will need to import 30 million to 40 million bushels of corn from Nebraska, Iowa and Kansas to feed the state's ethanol plants.

But ethanol as a motor fuel has its critics.

Some argue using corn to make fuel instead of food is morally wrong, given hunger among poor nations. Many blame rising corn prices, boosted by ethanol demand, for rising food prices.

Food prices have climbed 4.5 percent from last year, according to Brian Todd, president of the Food Institute, an industry association, while consumer goods prices have risen only 2 percent.

The most serious debate is around ethanol's energy balance: Does ethanol take more energy to produce than the energy derived from it?

David Pimentel, a professor at Cornell University, is among the critics who say that production of one gallon of ethanol uses more than a thousand gallons of water and that the fuel has a negative energy balance. One bushel of corn produces 2.8 gallons of pure ethanol.

Some say there isn't enough corn to make all the ethanol you would need to make even a dent in U.S. oil consumption. Today, ethanol blended with gasoline accounts for less than 5 percent of U.S. fuel sales, up from 2 percent in 2004.

Most recently, Wall Street began questioning the ethanol industry, as the surging price of corn ate into profitability.

Investors have withdrawn money for new plants and have withheld support for plant proposals, citing the overbuilding of plants and glut in supply.

"In my personal opinion, I don't see how ethanol is the panacea," said Robert Sharp, manager of downstream market development at Platts, an energy consulting firm in Houston. "You can have hybrid cars or maybe hydrogen fuel-cell cars. Cellulosic ethanol, I am told, is five years away from commercial success. Any number of solutions can be in the marketplace, and the best one will emerge."

'Good time' for agriculture

To an outsider, Yuma would seem an unlikely contender for the title of Colorado's ethanol center. The county has been a net importer of corn over the years, even though it is one of the biggest corn growers in the nation.

The corn always has gone to the county's hog farms, cattle feedlots and dairy businesses. Now, a chunk of the crop - about 17 million bushels a year - will go to ethanol.

Rising demand for corn not only is pulling up its price but also boosting prices of other agricultural commodities such as wheat and sugar beets.

"It's a good time to be in agriculture," said Jim Lenz, who is a couple of years older than his brother, Rod. "It is more exciting now than it has been for years."

The Lenzes should know. They reaped 670,000 bushels of corn this year, about 210 bushels per acre, topping last year's family record of 600,000 bushels. They already have sold some on contract, and stored the rest in silos - to be trucked throughout winter.

At an average price of $3.50 to $4 per bushel, the Lenzes could earn $2.35 million to $2.68 million, compared with 2006's $1.62 million.

Rutledge also had a good year, although his yield was lower - 180 bushels per acre, down from 200 bushels last year. He suspects that the rain that lashed Yuma this summer could have washed away fertilizers, stunting crop growth.

Still, higher corn prices will more than make up for the lower yield. Rutledge sold 40 percent of his corn for silage at about $4 a bushel, nearly double from a few years ago, and 50,000 bushels to a local co-op. He hopes to make much more on the remaining 80,000 bushels currently stored.

"A guy called me last week. He wanted one semi-load of corn, and we fixed the price at $4.15 a bushel," Rutledge said earlier this week. "He hasn't called back, but corn prices have gone up 4 cents since then. If he calls back, I will have to re-negotiate the price."

The water question

The fields may now be covered in snow, but there's much to be done.

The Lenzes are spending time analyzing this year's performance, the rights and the wrongs, and planning the next season. Rutledge is looking after his pig operation and dealing with composting issues.

Although both families have profited handsomely from corn, they won't devote more acres to corn next year. In fact, Rutledge will pry away 125 acres from corn and put them into wheat.

The reason: They want to reduce water consumption - a big issue for Yuma's farmers.

Yuma's irrigation wells pump fresh water from the Ogallala aquifer, also called the High Plains aquifer.

Colorado is legally obligated to replenish the Republican River, fed by the same aquifer, as part of a pact with Kansas and Nebraska. Kansas says well-pumping on the aquifer is causing a shortfall in the river, although Colorado blames years of drought.

Either way, newly appointed state engineer Dick Wolfe is reviewing rules that would be effective in 2009 that could shut down thousands of wells close to the river, retire thousands of acres of irrigated land and generally restrict water consumption.

That could put a big question mark on Yuma's status as Colorado's No. 1 corn producer and ethanol mecca.

On the other hand, some seed manufacturers already are researching corn varieties that would consume less water and yield more ethanol. But that is still a few years away.

"We are learning to reduce water use because I think it will be forced on us in the future," Jim Lenz said. "That will lower our yield because when you cut back on water, you cut back on fertilizer and seeds.

"But the community will look at other things. We have oil and gas development. We will look at wind generation or other renewable-energy resources. Don't give up on us yet."

chakrabartyg@RockyMountainNews.com or 303-954-2976

About the series

* This is the last installment in an occasional series about the boom in ethanol, a corn-based fuel, and its effects on northeastern Colorado communities. Today, we talk about the gathering clouds over ethanol, revisit the Lenz and Rutledge families to hear about year-end production numbers and visit an Aurora filling station where the fuel being pumped likely started as corn seed in Yuma County.

* To read the previous four installments of "Ethanol Boom: Kernel to Car" go to RockyMountainNews.com.

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Comments

December 22, 2007

7:29 a.m.

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rellimpank writes:

---if ethanol is to be mandated for usage in automotive uses, how about mandating its use in the production of corn???
December 22, 2007

10:40 a.m.

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Brockage writes:

The critics overstate and distort the case as has become common in political/economic issues of the day: 1) the corn used isn't sweet corn, the kind we eat, 2) ethanol supplies one small piece of the energy puzzle, and is/was never intended to be a "panacea" as Mr Sharp says, and 3) the ethanol phenom is in its infancy requiring subsidies right now, but as world oil continues to be depleted (daily demand 87 million barrels; daily production 85 million barrels), it will stand on its own in the marketplace.
December 22, 2007

2:32 p.m.

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Darwin writes:

The idea of energy independence sounds attractive but I'm not convinced that ethanol is the answer. I would like to see honest studies detailing the pros and cons (ones not sponsored by the ag/ethanol industry nor the food for the world groups but by a truly independent group). The intensive use of water and the lowered fuel mileage are issues that need to be addressed. As a matter of full disclosure, I own farm land in Indiana and have benefited greatly the past several years due to the ethanol boom. The land value has tripled and even though the operating expenses (seed, fuel, fertilizer, pesticides, etc.) have increased substantially, the rise in corn prices has more than made up for the increase. I too, feel that this ethanol phase will pass and I am negotiating the sale of my acreage. If I'm wrong, well I still made a very nice profit on the sale - enough to retire comfortably.
December 22, 2007

6:34 p.m.

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princeofwaldo writes:

I'm with Warren Buffet on ethanol, it's the dumbest idea I've ever heard. Once the energy to make the stuff is subtracted from the equation, it is a net loser from an energy perspective. As for the increased food cost to the world's most poor, the bonanza in corn prices means starvation to many of them. While I fully understand why farmers support the ethanol craze, seems to me the world would be far better off if the farmers received equivalent subsidies instead, paid directly from the USDA.

No one has bothered to look at the side effects. The price increases of corn, --just in Mexico-- very directly increases illegal immigration. There are so many downside affects that the whole ethanol craze will be viewed as mass insanity a 100 years from now.

The ethical concerns all aside, the fact that it wastes energy while driving-up food prices dooms ethanol long-term. It is a politically popular stunt, that's all it is, --force some regulations down everyone's throat requiring everyone to burn up the world's food supply in Chevy Suburban SUVs...,,, Only an American would see the logic in this. The rest of the world simply scoffs and wonders what final bit of delerious hubris George Bush can foist on the world between now and the end of his term.
December 23, 2007

10:25 a.m.

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dsterrett writes:

Ethanol was never intended to replace Oil. It has been produced to replace MTBE a known carcinogen. It is used to increase the octane in your gasoline.
Today we are importing over 60% of our oil from foreign country's that don't particularly like anything about the US except our $$.

As soon as the oil supply and our $$ are diminished we will find out who our real allies are. Try and run a Military without oil; Japan, Russia, and Germany, lost WWII because of that very factor.

Your article reads;the Lenzes got to pocket$2.35 million to $2.68 million, never mentioning that they might have had almost that amount invested in production cost, or the $8 million in land and equipment.
Another factor that seldom gets mentioned is the distillers grain (byproduct), being fed replacing a lot of the corn being used in the production.
E85 will never reach the MPG that regular gas will, the energy just isn't there. However E20 or E30 are doing very well in test.
If we can replace 20 to 30% of the oil, until "you" have a better idea, why not utilize ethanol?
December 23, 2007

12:07 p.m.

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Theoldguy writes:

The ethanol is popular with government because it can be taxed. If citizens could produce their own energy such as wind, solar, hydrogen etc. and leave the government out of the picture you'd see a run to those sources like the old gold rush days. All that is needed is a good source of quality information on the Internet and suppliers willing to not gouge the public. Maybe I've overreached on this train of thought.
December 23, 2007

12:43 p.m.

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princeofwaldo writes:

dsterrett posted: Ethanol was never intended to replace Oil....then a sentence later...Today we are importing over 60% of our oil from foreign country's that don't particularly like anything about the US except our $$.

Bit of a contradiction there, don't you think? Truth is we could convert ALL of the nations corn crop to ethanol production and it would still only reduce US oil consumption by 7%. That said, the suggestion that ethanol somehow enhances national security is obsurd.

There is only one solution to the nations addiction to imported oil, and that is to drastically reduce consumption. A nice place to start would be land use regulations (much like the French have) that reduce urban sprawl, along with much higher taxes on gasoline, perhaps as high as $5 a gallon phased in over 8 to 10 years. Of course such a proposal runs counter to the American automotive ego, whereby a mans virility is somehow measured by the wheelbase of his vehicle.
December 27, 2007

12:06 p.m.

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prk166 writes:

Brockage --> Do you work for the USDA? It doesn't matter how much corn we eat. What ethanol IS doing is providing financial incentives for farmers to grow corn that is to be used for it's production. There is only a finite amount of land that can be used for growing crops. The more that goes toward ethanol, the less we have for other uses. And yes, a lot of corn isn't grown for direct human consumption. It's grown for feed for cattle and poultry that we eat. Whether or not we directly consume it or not, it IS affecting the price of all food. We've been seeing these articles for how long and you're still denying it?

Just as bad this continues us down the road of depleting the Oglala and other aquifers. Once those are gone, they're gone. We really have no business growing a tropical grass, and that is what corn is, in Colorado when we we get less than 1/2 of the rainfall it requires.

Home › Business › Energy

Clouds hover in ethanol sky

Even as fuel benefits rural areas, corn farmers shy away from its volatility

Gargi Chakrabarty

Published December 22, 2007 at 12:05 a.m.

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