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DAVID KRUSE

By Staff | Jul 31, 2015

Here are a couple of emails that I received commenting on my recent report on ethanol along with my responses and amplifications to points that were made.

“I just listened to your radio report and have some real issues with some of your statements.”

Comment: “The ethanol industry will be fine without the RFS. It is time it gets weaned from the Government.”

My response: Many do not understand what the Renewable Fuel Standard is, nor how it functions. The RFS is not a subsidy nor is it a teat of the government that the ethanol industry is sucking on.

It is the backstop behind the plate if there were to be a wild pitch. The current level of ethanol being produced is not predicated on the RFS directly, but is being determined by the market place.

What the RFS does is safeguard against predatory market practices of the petroleum industry that controls the retail fuel distribution network. If ethanol sold for a nickel per gallon and cured cancer they would still opt not to sell it instead of gasoline without the backstop of the RFS. All the RFS does is protect market access so that the petroleum industry can’t shut ethanol out of it. That is something that as long as the petroleum industry has the will to use its market power to limit consumer access to ethanol that will not go away. The RFS should therefore be maintained.

Comment: “Ethanol is cheaper than gasoline but it has to be to compete, as E85 has 26 percent less BTUs than gasoline. The lower gas mileage is never mentioned as a cost to consumers.”

My response: I think you used the oil company’s data for BTUs in ethanol. The lower mileage is not enough to offset the cost savings so the premise that ethanol is the cheapest fuel molecule in the tank still stands. Ethanol also has value as an octane booster. In fact, the petroleum industry blends ethanol as an octane additive rather than a fuel. Overall consumers enjoy direct and indirect cost benefits from ethanol.

Comment: “It’s true that DDGs are a great feed source, but they are not free, they have been priced out of our feed rations for over two years now.”

My response: I don’t know the type of livestock that you are feeding nor the type of distiller grains you use, but Dried Distillers Grains are valued as feed value at over 110 percent the price of corn on a dry matter basis. A local feedlot is currently buying the 50 percent modified product for $50 ton FOB. That is the equivalent of $2.50 corn. This price had come down from $70 ton which was near equivalent to the price of corn at that time. We have close to $4 cash corn here locally today so the distillers has a 37.5 percent cost advantage over corn being fed to cattle. I think that you should consider putting distillers back into your ration.

Comment: “I agree that the subsidies for oil companies should end also.”

My response: It is actually the petroleum industry that is sucking at the teat of the government and most ethanol critics never mention that.

Another reader emailed me the following:

Comment: “Thank you for your recent article. Having folks understand that ethanol actually helps produce livestock with a better feeding practice is a big challenge. While ethanol competes against the sugar in a can of Coke, the protein from DDGs is still putting dairy, eggs and meat in their refrigerator. I also think the octane piece is largely misunderstood. While the oil industry doesn’t want to lose more market share and oppose E15 and higher blends, they like to keep E10 for the octane market.

“Per the refinery handbook information, there is no other component of gasoline that has the octane value like that of ethanol. Increasing octane at a refinery not only adds cost, but lowers the volume of fuel from a barrel of oil. The blending value of ethanol up to E30 is significant and I would bet my next paycheck that one reason they don’t like more ethanol is the fear of octane competition. Most consumers will not lose mileage on E15 or E20 if we simply add ethanol to E10. The autos have proven this in several papers that octane matters.”

My response: The handbook mentioned showed a 119 blending value for Ethanol compared to 104 for Toluene which has the highest blending value for any petroleum octane additive. Personally I use E-30 which closely matches the fuel blend used in Brazil where they are free from petroleum interests protecting their market share and the blend that studies have shown to be the sweet spot for performance. Most criticize ethanol as a fuel comparing BTUs to gasoline but when ethanol is viewed as your comments noted as an octane additive, that is where the cost effectiveness really shines. While E-15 is approved in most vehicles here in the U.S. the use of E-25 or E-27 in Brazil has proven that mid-range ethanol blends cause no harm to engines. The octane in ethanol is why they prefer ethanol for racing fuel rather than gasoline.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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