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By Staff | Oct 2, 2015

During Clay County Fair week, here in NW Iowa, companies take the opportunity to promote what they sell.

A lot of people drive to and from the fair that need to fuel up. I noted a stark difference in which fuels that retail motor fuel outlets promoted for the fair. The fuel outlet that I use most often is the Star Energy station west of Spencer, which offers a selection of fuels through blender’s pumps. Prices that day at Star Energy were: E-10-$2.22, E-15-$2.19, E-30-$2.12, E-85-$1.82 per gallon.

I use E-30 in my non-flex fuel Dodge pickup and get great performance and value. I am also tripling the ethanol consumption of anyone else buying E-10. There is a lot of leverage in ethanol demand in higher fuel blends. USDA says that we will consume 13.775 billion bushels of corn this next year and 5.25 billion of it is going to the ethanol process.

The ethanol use can be adjusted downward by 40 percent for the feed value in the distillers grain by-product. So, about 23 percent of the US corn crop goes to make ethanol. That supplies approximately 10 percent of the US motor fuel supply sold primarily through the E-10 fuel blend.

If we could increase that total US ethanol consumption by 1 percent to the equivalent of E-11 it would consume another 525 million bushels of corn. The additional distillers grain produced could offset some corn feed usage so the quick math using these percentages would result in a 1 percent increase in ethanol consumption reducing the corn carryover 315 mb.

That would reduce a forecast 1.592 bb corn carryover to 1.277 billion. That would be enough to increase the price of corn to the cost of production or higher contributing much needed revenue to net farm incomes.

The USDA’s new program to incentivize the installation of 4800 more blenders’ pumps, doubling the number of these pumps, will provide the market access necessary to accommodate the increase.

Farmers benefit greatly from the demand that ethanol consumption adds to corn demand and net farm income. Yet nearly half of farmers polled at a recent ethanol investor’s conference limit their ethanol use to E-10.

That means that they are essentially part of the petroleum industry blend wall. That is poor leadership from the farm sector. Frankly, it is embarrassing that farmers will take ARC subsidy payments but don’t buy their own product as ethanol.

Here is an instance of what I am talking about: I drive by the Max Yield Cenex station in Fostoria, Iowa everyday on my way to work.

The coop has a grain elevator there and they just finished building another huge grain bin in time for our bumper harvest. Their Cenex station is on U.S. Highway 71, a 4-lane highly trafficked highway so it is a prime location. Not only is there no blenders’ pump there, but the fuel they were featuring during fair week was Premium Unleaded 91 Octane. There is no ethanol at all in that fuel.

I was perplexed as to why anyone would want to buy 91 octane fuel and according to my internet search using Kelly Blue Book, USA TODAY, Federal Trade Commission, Edmunds and Car Talk … there is none.

It is a wasted fuel expense. Premium fuel used to be needed if an engine pinged, but they have now taken care of that with something called a knock sensor in vehicles older than 1996, obviating the need for premium gas.

The most amusing response to the question “Are there any circumstances when you should use premium octane?” came from the Car Talk guys who said,” If you plan to haul that aforementioned mother-in-law in hot weather, or are going to be driving up monstrous mountain passes with a heavy laden car, then you might consider filling up with a tank of premium gas.” I am told that boats use premium gas but I have never seen a boat pulled up there.

The pricing was the real eye-opener. The Fostoria Cenex station pricing was: E-10-$2.27, 91 Premium Octane- $3.13 per gallon.

Here are a couple of take-aways from this: You have a farmer-owned cooperative that is building grain bins to store corn in hopes that someone will pay more for it. Max Yield has its name up on the marquis of the Lakota GPRE ethanol plant so they sell corn to ethanol buyers.

Yet I am told that they have 17 retail fuel stations and only one has an E-85 pump. In Fostoria, they are promoting a petroleum fuel with no ethanol costing $3.13 per gallon compared to the Star Energy station marketing FS E-85 for $1.82 per gallon. That is $1.32 per gallon difference!

Max Yield Coop farmers are selling what fuel Cenex makes rather than what they grow. This logic defies a lot of things including common sense. There is no benefit to premium fuel in typical autos. Yet at this station they devote pumps to premium fuel with a banner instead of E-15 or a higher ethanol blend fuel.

Max Yield Coop is celebrating its 100th year anniversary so has been around awhile. One would have thought that would have resulted in more wisdom than that. The proper supply chain structure, as they do not appear to know, would be to build the bins, sell corn to ethanol plants but complete the circle by actually consuming and marketing the product, corn, that they produce as ethanol.

There are a lot of people angry with government today and feel that nothing seems to work and the leaders we have are stupid. Not all of that is in Washington. You can drive down highway 71 and see the same thing right here.

I do not understand the reluctance, reticence, abstinence and lack of initiative of US farmers to become their own best consumer of what they produce as biofuels customers.

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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