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July
29
2019

The U.S. Corn Ethanol Boondoggle: Producing 1 Million Barrels Per Day Of Unprofitable Energy
Steve St Angelo

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:

1. Rhode Island
2. Delaware
3. Connecticut
4. New Jersey
5. Massachusetts
6. New Hampshire
7. Vermont
8. 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.

Now, if we look at some of the financials by the Ethanol producing companies, we see evidence of mounting losses.  For example, Green Plains Inc, the fourth largest ethanol producer in the U.S., reported a $42 million loss in Q1 2019.  Furthermore, Pacific Ethanol, a smaller producer, recorded a $13 million loss during the same quarter.  And, if we look at Pacific Ethanol’s stock trend over the past few years, it seems as if INVESTORS are quite unhappy with the company’s performance:

As we can see, Pacific Ethanol was trading near a high of $24 in 2014, but now is a penny stock at a mere 60 cents a share.  While Pacific Ethanol might be a smaller producer, it’s $1.5 billion in total revenues last year wasn’t chump change.

Also, as I mentioned, ADM, the second-largest producer in the country, is also struggling.  From the article, ADM Separates Ethanol Business:

The Archer Daniels Midland Company (ADM) is breaking news of breaking off their ethanol unit…and a tumbling 40% decline in profit.

…. According to Reuters, “Last week, U.S. ethanol production hit 1.05 million barrels per day, highest in at least five years seasonally, according to U.S. Energy Information Administration data. Inventories climbed to 22.75 million barrels, not far from the record of 24.45 million hit in March. Producers such as Green Plains (GPRE) and Pacific Ethanol (PEIX) have laid off workers and idled or sold plants to stay afloat during the sustained downturn. Ethanol prices are down 42 percent in the last five years, while Green Plains and Pacific Ethanol have seen their shares fall 33 percent and 92 percent, respectively, in that time.”

So, while we see real trouble for the U.S. Ethanol Industry as companies lay off workers, sell or idle plants to remain afloat, it’s only going to get worse.  Why?  Because the Ethanol Industry has one of the lowest energy EROI’s (Energy Returned On Investment) in the United States:

Corn-based ethanol fuel actually has a lower EROI than either Canadian Oil Sands or U.S. Shale Oil.  If we look at the chart above, corn ethanol and biodiesel EROIs are tied for last place.  Thus, by using higher quality EROI energy from oil, natural gas, and coal to grow, harvest, and produce the low-quality EROI corn-based ethanol fuel, the industry is basically turning GOLD into LEAD, while losing money doing it.

And, if that wasn’t bad enough, the huge increase in U.S. fuel ethanol production came on the back of rising shale oil production.  Corn ethanol production in the United States remained relatively flat from 1990 to until the early 2000s.  However, when U.S. shale oil started to ramp up in 2007, we see the same for ethanol production.  Ethanol production jumped from 150 million barrels per year in 2007 to over 350 million barrels in 2016.

In an ironic twist of fate, the United States is trying to become energy independent by ramping up production of two of the lowest EROI fuels in the world.  According to some studies, U.S. Shale oil has an EROI of 5/1 while corn ethanol is 1.2-1.5/1.  Gone are the days in the 1930s when the U.S. oil industry was producing oil at an amazing EROI of 100/1.

Unfortunately, I see real trouble ahead for the U.S. Ethanol Industry… an industry that produces more than a million barrels of extremely low EROI ethanol fuel a year.  When U.S. shale oil production peaks and declines, it makes perfect sense that domestic fuel ethanol production will also do the same.

Lastly, Zerohedge posted this article; This Is What Americans Spent The Most Money On In The Second Quarter, stating that Americans spent the most of their income in Q2 2019 on Recreational Goods and Vehicles… over $22 billion.  This makes perfect sense.  Americans are totally clueless about the coming economic calamity and are preparing by going further into debt by purchasing recreational vehicles so they can GET AWAY from the RAT RACE.

Years from now, we are going to look back at the Great U.S. Ethanol Boondoggle and why we wasted so much energy and capital producing one of the lowest EROI fuels in the world.

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Independent researcher Steve St. Angelo (SRSrocco) started to invest in precious metals in 2002. Later on in 2008, he began researching areas of the gold and silver market that, curiously, the majority of the precious metal analyst community have left unexplored. These areas include how energy and the falling EROI – Energy Returned On Invested – stand to impact the mining industry, precious metals, paper assets, and the overall economy.

Steve considers studying the impacts of EROI one of the most important aspects of his energy research. For the past several years, he has written scholarly articles in some of the top precious metals and financial websites.

You can find many of Steve’s articles on noteworthy sites, such as GoldSeek-SilverSeek, Market Oracle, Financial Sense, GoldSilver.com, SilverDoctors, TFMetals Report, Outsiderclub, SGTreport, BrotherJohnF, Hartgeld, Der-klare-blick, PeakProsperity, SilverStrategies, DollarCollapse, FurtureMoneyTrends, Sharpspixley, FinancialSurvivalNetwork, Pmbull, Deviantinvestor, PmBug, Wealthwire, and ZeroHedge.

  

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