by Steve St. Angelo, SRSRocco Report:
The U.S. Corn Ethanol Industry, the largest in the world, is now losing a serious amount of money producing unprofitable biofuel. While the situation for the ethanol producers was bad in 2018, due to losses stemming from falling margins, it’s even worse this year. This has prompted one of the country’s largest ethanol producers, ADM – Archer Daniels Midland, to sell some of its ethanol assets with the possibility of spinning off its entire ethanol business operation.
While higher corn prices and falling revenues have negatively impacted the U.S. Ethanol Industry recently, that is only a small part of a much bigger problem. You see, the EROI (Energy Returned On Investment) for corn-based ethanol, is so low, there’s virtually little if any, net energy produced from the 16 billion gallons of the biofuel supplied by the U.S. industry last year… or any year prior.
IMPORTANT NOTE: Please understand my analysis of the U.S. ethanol industry is focused at the macro-economic level and is not directed at the individuals or companies who are doing the best to their abilities. The main problem as I see it is that the leadership today is not providing the market with wise advice on our energy situation. Instead, we are ignorantly heading over the energy cliff without a care in the world. Unfortunately, this will end badly
That being said, according to the Alternative Fuels Data Center, U.S. ethanol production has more than doubled from 6.5 billion gallons in 2007 to 15.8 billion gallons in 2017:
As we can see in the chart, the United States is by far the largest ethanol producer (Blue bars), followed by Brazil (Orange bars) at a little more than 7 billion gallons per year. The United States and Brazil account for 85% of global ethanol production.
Now, how much corn does the U.S. Ethanol Industry consume to produce nearly 16 billion gallons of its biofuel per year? Well, according to the information from the USDA (U.S. Department of Agriculture) and WorldofCorn.com, the Ethanol Industry consumed nearly 40% of the entire U.S. corn crop last year:
Of the total 14.4 billion bushels of the U.S. corn crop in 2018, the domestic ethanol industry devoured 5.5 billion bushels or 38% of the entire supply. So, how much land is needed for U.S. ethanol production?? The USDA states that the farming industry harvested 81.7 million acres in 2018 to supply that 14.4 billion bushels of corn. Thus, the U.S. Ethanol Industry needed 31 million acres of corn just to produce its biofuel last year.
How much land is 31 million acres?? That’s nearly 48,500 square miles. Thus, the Ethanol Industry needed the crop acreage of the following states total area to produce its fuel:
- Rhode Island
- New Jersey
- New Hampshire
- Maryland (90%)
Actually, I was quite surprised how much corn the Ethanol Industry consumed to make its fuel. I knew it was a lot, but I had no idea. By the way, here is an interesting data point. The largest food component of the corn industry is not food or cereals; it’s High-Fructose Corn Syrup. Check out how much corn the Ethanol Industry consumes versus the Food and High-Fructose Corn Syrup Industries:
U.S. Corn Consumption 2018 (million bushels)
Ethanol Fuel = 5,515 million bushels
High-Fructose Corn Syrup = 455 million bushels
Food & Cereal = 209 million bushels
The U.S. Ethanol Industry consumed 12 times more corn than the High-Fructose Corn Syrup Industry and 26 times more than the Food & Cereal Industry. This data came from WorldofCorn.com. Pretty amazing… huh? And even more surprising, the number one consumer of corn in the United States is the Ethanol Industry (38%) followed by the Animal Feed Industry (34%). So, all you folks who thought the miles and miles of corn in the midwest were mostly grown for food, think again.
Now, it’s one thing for so much valuable farmland to be used for the production of fuel ethanol, but it’s even worse when the industry can’t turn a profit. As I mentioned at the beginning of the article, while 2018 was rough for the Ethanol Industry, 2019 is turning out to be a REAL BUMMER.
I am not going to get into too many details plaguing the U.S. Ethanol Industry, but one of the more recent factors is the rising corn prices due to the record rains and flooding in the midwest negatively impacting the corn crop. And along with falling Ethanol fuel prices, it has put a real KIBOSH on profits.
If we look at the data provided by the Iowa State University on their estimated “Net Returns” for the ethanol producer, we have the following spreadsheet:
It’s hard to read this chart, so I made a larger table from the insert above:
The highlighted area of the table provides an “estimated net return” per gallon for the typical ethanol producer in the United States. By including “ALL COSTS,” the folks at Iowa State, (Iowa is the largest corn ethanol producer in the country), calculated that the typical ethanol producer lost 27 cents per gallon in May 2019. That 27 cent loss per gallon includes paying debt.