Ethanol carries renewable fuels torch into the future

Mary S. Tangen, Product Manager – Biofuels, DTN

Things sure have changed back home on the farm.
When I was growing up on a farm in northwest Iowa, I would have never dreamed of all the job opportunities and economic growth that is now happening in a rural farm community. All of this new development is due to renewable fuels, specifically ethanol. Many farmers like my family and I, were not sure how fast the ethanol industry would grow, but it has surpassed expectations and created an attractive return on investment.

Talk about a fast-growing industry. In 2005, four billion gallons of ethanol were produced, which is quite a jump from just under two billion gallons in 2001. However, as of November 2006, total production for this year already passed the four billion gallon mark. The federal government has pushed for much of this growth by enacting the Renewable Fuels Standard, which mandates that ethanol producers must make 7.5 billion gallons per year by 2012.

But I don’t see ethanol’s remarkable growth stopping there. As the map below indicates, there are 106 operational ethanol plants, 65 plants under-construction or expansion and another 239 plants in planning stages.



With so much change underway in the industry, ethanol producers, investors and traders are facing new and difficult challenges. Since this market is immature and rapidly developing, industry participants must find comprehensive data quickly to help them make the best decisions for their business. Information like refined fuels prices, which have been increasingly volatile recently; corn prices, which are currently experiencing changing market dynamics and trends; and the extreme seasonality of natural gas prices. Yet due to the immaturity of the market, there is limited price transparency in ethanol, fuels and the distiller grains markets. As producers deal with these challenges, they must continue to minimize their commodity price risk while efficiently communicating the current and forecast plant profitability to key decision-makers and boards of directors.

Producers are currently challenged with finding ways to produce cellulosic ethanol. The industry, as it is now, has a small chance of replacing the majority of fossil fuels with just corn-based ethanol. So there have to be other technologies that make it possible to use a large variety of feedstocks in ethanol production, such as switchgrass, corn stover, wheat straw, trees, wood chips, etc. Of course, supply and efficiency of these materials will be constant issues requiring thought and planning in years to come.

Fortunately, there are companies out there that are striving to help the ethanol industry meet their challenges head-on. DTN’s ProphetX Ethanol Edition, prepares producers for the volatile markets and helps them drive ROI through effective plant and risk management. DTN also launched the Ethanol Information Center, a free public Web site offering the latest ethanol industry news, headlines, agriculture, ethanol and energy market analysis, market data, projected plant profitability charts as well as an interactive blog. It’s a great one-stop resource for people that need quick information on ethanol.

There’s no doubt that there will continue to be new and exciting developments in the ethanol industry, and that these changes will bring about new challenges. Not only is the industry preparing to conform to the RFS, work has been done on new ethanol plants which will create ethanol from cellulose feedstocks. This is certain to have an impact on the demand of corn for ethanol purposes, as well as raise downstream supply issues. Another firm recently announced they are researching the creation of biodiesel from the ethanol co-product, distiller’s grains. This could eventually influence the demand for soyoil and the economics of livestock feedlots which utilize distiller grains as a feedstuff.

One thing’s for sure, I’ll be excited to see how many more opportunities there are back home on the farm 10 years from now.

Mary Tangen leads the product development of DTN’s Renewable Fuels Solutions. Mary has a master’s degree in economics emphasizing on econometrics in new emerging markets. She has worked in growth markets for the past eight years and with DTN for more than three. To learn more about up-to-the-minute developments in ethanol, check out DTN’s free Ethanol Information Center Web site: www.dtnethanolcenter.com. To speak with Mary directly call (402) 399-6446 or send an e-mail to mary.tangen@dtn.com.