GoodFuels

Floods don’t mean doom for ethanol

The floods in the Midwest are wreaking havoc on towns, cities, universities, homes and residents.  With rivers cresting far above flood levels and the waters only today beginning to recede, the full damage is still to be determined.  Considering the vast number of crops in the affected areas, what kind of an impact will the water have on the corn crops and the production of ethanol?  Good question!

There have been many news articles recently that have speculated that the flooding will result in higher ethanol prices, and in turn, higher gasoline prices.  However, the historical correlation between corn prices and ethanol prices is very weak.

Ethanol stocks totaled 11.4 million barrels at the end of March, which means 500 million gallons of ethanol are in storage and available to gasoline blenders.

Corn farmers harvested a record crop of 13.1 billion bushels in 2007 which boosted our supplies for 2008.  We “carried in” more than 1.4 billion bushels of corn from 2007, roughly 11% of the corn used for all purposes last year.

Total global grain production (coarse grains, wheat and rice) is projected to be 2.3% higher in 2008 than in 2007.  Factoring in the destroyed crops from this year’s foods, Farm Futures Magazine estimates that 2008 corn plantings are likely to cover 84 million acres.

Bob Dinneen, President of the Renewable Fuels Association, said in a statement yesterday:

“Knee-jerk reactions to this unprecedented weather event would do even more harm to the nation against the backdrop of the current oil and economic crises it faces. Abandoning our commitment to ethanol and biofuels, as some would suggest we do, would do nothing to provide meaningful relief from high grain prices today or in the future. It would absolutely force the price of gas through the roof and require the import of more record-high foreign oil.”

Photo by: justmakeit