Farmers need more ethanol at the pump.
For American corn growers, the 2016 season has seen record-setting bushel totals (14.5 billion) and record average yields (170 bushels per acre).
But this season has also been marked by plummeting prices and “mountains” of unsold corn stored in silos or on farm fields waiting for a market.
As Precision Ag practices and ever-evolving technology continue to drive yields even higher (some experts are predicting nationwide averages of 300-bushel yields within 15 years), the farm industry finds itself at a crossroads as corn production continues to outpace the current market demand.
“We’re sitting on mountains of corn, soybeans and milo,” says Jay Schutte, who co-owns a 2,700-acre crop and livestock farm in Audrain County, MO. “Incomes have been dropping. There’s been a lot of talk about tightening credit with farmers, that farmers are stretched on their credit lines. We need to take a serious look at what the next few years could hold.”
Midwestern farmers, according to the U.S. Department of Agriculture, are facing falling incomes and trying to recover from a borrowing binge that began just under a decade ago when grain prices were peaking.
A recent Reuters study analyzed agricultural lending in three states – Illinois, Indiana and Iowa – and found a sharp rise in delinquency rates on farmland and production loans. The same study also revealed another troubling trend: the number of farmers who were “extremely leveraged” has doubled over the past three years.
“We have been looking at three years of net operating losses for a number of our producers,” says Randy Aberle, Senior Vice President of Agribusiness and Capital Markets at Ag Country Farm Credit Services in Fargo, ND. “This season, we have corn piled up all over. A lot of it is not under cover. When you combine that with commodity prices dropping, we need to take a look at how to increase markets in the future.”
Those increased markets were helped along slightly by the recent fall of the Environmental Protection Agency’s (EPA) blend wall, which imposed a 10 percent maximum of ethanol in gasoline. Although cracks in the blend wall are promising, uncertainty remains regarding the future of the Renewable Fuel Standard (RFS) with the new Congress. The industry also faces another artificial market barrier with Reid Vapor Pressure (RVP), which the EPA regulates to prevent increased ozone or smog from vehicle emissions. Currently, E15 is not afforded the same RVP volatility waiver as regular gasoline with 10 percent ethanol, even though it is less volatile. Under this restriction, retailers are largely prohibited from selling E15 for use in vehicles 2001 and newer during the summer months.
Removal of these barriers – which the ethanol industry have been fighting to tear down for a decade – would create a path for higher ethanol blends (especially E15). In turn, this path creates a solution to increasing commodity supplies, which creates an increase for commodity prices.
Don Easley invested in his 2,100-acre corn and soybean farm in Marion, OH, in the 1980s. For him, the solution is, literally, right around the corner at POET Biorefining – Marion. That ethanol plant buys 25 million bushels of corn annually and expects to produce nearly 70 million gallons of ethanol this year. In total, POET’s 28 biorefineries will buy 650 million bushels of corn and produce 1.7 billion gallons of ethanol in 2016.
“It’s that simple,” says Easley. “Farming is down from a price standpoint. The revenue stream has decreased over the last three or four years. Our overall market has gone down, but our ethanol market has continued to slowly go up. If we had more demand for ethanol, that would help with the excess grain from the higher yields.”
It’s no coincidence, says Easley, that the farm sector was at its healthiest – and has experienced record profits – during the height of ethanol growth and expansion periods.
“POET, and the ethanol production in this area, is the best thing that’s happened to the ag community in central Ohio in forever,” he says. “POET has a tremendous appetite for corn, and we’re going to need even more of that for the future. More ethanol would give us that stabilization and diversification to move forward again like we were able to in previous years, when ethanol first took off here.”
In order for ethanol to make that important jump to the next level of increased production, POET’s leadership stresses that the RFS – the federal program requiring that increasing amounts of renewable fuels be blended into the nation’s transportation fuel – must continue to evolve in order to give consumers more choices at the pump.
While the RFS has provided the incentive necessary to develop corn ethanol technology and the assurance to farmers that the market access won’t fall out beneath them, it will need to be fortified by more E15 options as well as increased choices for consumers, including more ethanol pumps at more major retailers.
Turning back agriculture’s tech advancements is not an option. These past four years have produced 57 billion bushels of corn, the highest four-year total in the nation’s history. Ag sustainability and environmental efforts – from Precision Ag practices to cover crops to crop rotation – are advancing like never before.
Jay Schutte, who is sitting on that mountain of corn in Missouri, says he’s hoping for more marketing opportunities for his grain. But he has a hard time understanding why ethanol has not been fast-tracked for higher blends in the fuel supply.
“It [ethanol] has done so much when it comes to helping eliminate payment programs and farm subsidies,” he says. “Ethanol has been so good for farming, and it needs to be allowed to keep moving forward.”
A “farmer first and foremost,” John Buck is also the founder of TurnKey Leadership Group, which helps farmers assess their long-term direction. For Buck, who farms 1,000 acres in New Bloomington, OH, that “moving forward” needs to happen sooner rather than later.
“Right now, farming is definitely in a world of uncertainty,” he says. “We’ve come off these super prices and great yields to more great yields and not-so-super prices. If something’s not done, these next few years could be the years that weed people out, especially the younger farmers. This bubble could definitely burst.”
For Buck, those seemingly simple changes, like a push for E15 and increased ethanol opportunities at the pumps, would bring big-picture positives.
“We know that increased ethanol would help us directly,” he says. “But this isn’t just about Marion County and it isn’t just about Ohio and it isn’t just about the United States. It’s a global picture. Ethanol is the next generation for the future of farming, and that future could, with a little push, start happening today.”
The fight for the future of agriculture is at the gas pump and now is the time for agriculture to get involved. Higher blends of ethanol will be the key to success for future generations, as farmers and the ethanol industry continue to pursue second-generation biofuels.
Full rollout of E15 will create demand for an additional two billion bushels of corn. Just imagine the demand – for corn and biomass – that follows when consumers ask for higher blends of biofuels like ethanol.