Could Iraq War Boost Ethanol Production?

By: Nikos
December 5, 2006

Disenchantment with the US war in Iraq might lead to a political push for greater biofuel use which could conceivably quadruple US ethanol production, a grains export executive said.

If the desire for energy independence continues and pushes ethanol production high, it could produce average cash corn prices of over $4.00 per bushel at times during the next decade.
 
"The intersection of the world energy market and US agriculture has happened," Bill Hudson, of the Olathe, Kan.-based ProExporter Network told the opening session of the National Grain and Feed Association's annual country elevator conference here Monday.
 
Hudson said that with demand for corn now largely predicated by the rapidly expanding ethanol fuels industry, the price of shrinking crude oil supplies immediately becomes the key independent variable to be considered by corn market forecasters.
 
As such, Hudson said he has a bullish bias for corn prices, contending that from a geopolitical standpoint, it is unfeasible for the US military to withdraw quickly from Iraq. He predicted a swift withdraw would allow Iran to dominate the region and effectively hold Western economies hostage by threatening oil production with nuclear weapons.
 
"The national security picture is a dreadful one. You are facing another 24-36 months of headlines showing more and more Marines being killed by suicide bombers," he said. "The American public is going to become so sick and tired of being held captive by the Arabs that they are going to go for an incredibly huge alternative energy program."
 
Hudson also claimed that econometric models suggest that U.S. ethanol output could rise from 4.5 billion gallons in 2005-06 to 18.7 billion gallons in 2015-16.
 
"The odds look very good to me for not only doubling the present Renewable Fuels Standard from 7.5 billion to 15 billion gallons or more, but for an enormous and well-funded attempt to pursue switchgrass and other cellulosics," Hudson said, pointing out that bills mandating 100 billion gallons of biofuels production by 2025 have already been introduced in Congress.  "Politics are on the side of the renewable fuels industry," he said.
 
Although ethanol prices may continue to "have a life of their own" for the next 3-4 years, operating somewhat independent of outside market forces, Hudson said the industry will largely remain profitable, generating positive returns on investment of around 5-35 cents a gallon.
 
"Many plants are already paid off," he noted, after accruing profits which averaged 35 cents in 2006 after briefly spiking to some $2 per gallon in June.
 
Although demand from animal agriculture and exports could wane, Hudson said strong profitability from the ethanol sector could prompt US farmers to put in "84-85, maybe 88 million acres" in coming years, and potentially close to 92 million acres of by 2015.

Source: ethanol-information.com