USDA Experts Say Ethanol Blend Wall is Close

(Posted by Cindy Zimmerman at

Ethanol is getting very close to hitting the blend wall, according to economists with the U.S. Department of Agriculture.

With four months in a row of record ethanol production and stagnant gasoline demand, ethanol stocks are increasing. “Margins have weakened a lot over the last few weeks,” says USDA chief economist Joe Glauber, and indicators are that the blend wall is closing in.

“We’ve seen a sharp drop in ethanol prices,” USDA Outlook Board Gerry Bange adds in a USDA radio report, which he says has cut returns for ethanol producers dramatically.

That means that the future for the industry may very well hinge on the decision EPA has yet to make – moving the allowable blend level for ethanol in gasoline up to 15 percent from the current 10. “Given the fact that gasoline consumption in this country simply is not growing very rapidly and has essentially been flat for some time now, we are getting to the point where we simply have absorbed as much ethanol as we can under the current E10 legislation,” said Bange.

USDA’s latest supply-demand report out Friday left projected 2009-10 corn use for ethanol unchanged at 4.3 million bushels but lowered corn feed and residual use by 100 million bushels lower as March 1 stocks and a record January ethanol production indicate lower-than-expected December-February feed and residual disappearance.

Our Take:
America has reached the next fork in the road to its energy future. Do we want to use more oil or do we want renewable ethanol use to grow? These are the two alternatives, because looking ahead, we know we are going to increase our use of transportation energy. Cellulose ethanol’s growth will depend on a strong foundation of corn ethanol production—the most economically feasible approach in the near and middle term will be to build cellulose ethanol production facilities at the front end of existing ethanol plants—these would use corn cobs and other agricultural leftovers to make cleaner burning ethanol. This will eventually lead to the development of waste-to-ethanol technologies that every city can use to generate stationary power and many other possibilities for making energy production a local boost to the economy and environment, rather than a drain on the national economy and a point of weakness in our national security.

The only way oil supplies can grow is to tap the increasingly dirty, high-environmental-impact oil recovery technologies—whether it is using natural-gas or oil heated steam to force heavier crude out of the ground, as is done in California and in Venezuela, or strip mining the oil sands that lay beneath the northern forests of Alberta, Canada, and leaving behind a moonscape of tree stumps and toxic open air tailing ponds. Alberta currently has 50 square miles of these lakes of sludge and has ground 250 square miles of virgin forest into dust. Another 1700 square miles of forest are likely to be pulverized unless America—the chief consumer of this oil—puts the brakes on this environmental disaster.

On the other hand, producing more corn ethanol means switching a moderate amount of crop acreage from other crops to corn—the toll on the environment from dirty oil is a downhill race, getting steeper by the minute, while state-of-the-art U.S. agriculture continues its trend of using fewer nutrients, pesticides and herbicides per bushel of corn.

If we take ethanol growth out of the equation, according to the U.S. Department of Energy, within ten to forty years, as much as a quarter of our oil will come from these methods that require an increasing amount of energy to retrieve (meaning that they put more carbon into the atmosphere) and that devastate the environment.


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