Can ethanol’s promise match its hype?
Even with a new ethanol plant in their backyard, Ontario corn growers are still waiting for the bounty.
When a new ethanol plant opens in the heart of corn country, if you’re a corn grower, that has to be good for business.
When the St. Clair Ethanol Plant opened its doors in Sarnia, Ont., last August 31, it became the largest ethanol production facility in Canada. The plant expects to
produce 200 million litres of ethanol per year, a target that will take 20 million bushels of corn annually. That’s more than 10 per cent of the 184 million bushels of
corn Ontario farmers grew in 2004-05.
According to Ryan Brown, while ethanol is a huge opportunity in theory, the practicalities of accessing this new market could be challenging for growers. As
evidence, he cites the substantial use of U.S.-grown corn during the plant’s initial weeks of production.
“Our policy stance is that we’re supportive of the ethanol industry,” says Brown, interim general manager of the Ontario Corn Producers’ Association. “What we
are concerned about is the domestic market’s access to subsidized and dumped U.S. corn. It means a hard time translating this ethanol production into any kind of
a premium for Ontario corn growers.”
Divided views on ethanol’s impact
At first glance, the ethanol opportunity looks like a slam-dunk for corn growers. According to the New York Times, 39 new ethanol plants will be completed in the United States by the end of 2007.
These new plants will produce 1.4 billion gallons of ethanol per year. U.S. ethanolmaking capacity could be 5 billion gallons per year in 2007, and possibly 8 billion
gallons per year by 2008. By 2010, capacity could reach 11 billion gallons.
To feed this multiplying plant capacity, it’s projected that approximately 20 per cent of U.S. corn production will go to ethanol in 2006-07. By 2009-10, 35 per
cent of U.S. corn production could go for ethanol. To move these corn acres away from other crops, the market response will be to offer growers a significantly
higher price. That’s the theory, anyway.
In a presentation to the Ontario Wheat Producers’ Marketing Board last August, however, U.S.-based commodities broker FCStone Group took a sharply
different view.
“They said if you look 10 years out, the impact could be relatively little in terms of acres,” says Brown. “Corn acres are expected to rise somewhat, and soybean
acres are expected to decline, but with yield increases in corn and the slowing development of the industry, the expectation is that the U.S. would remain
in a surplus position and hence would still be exporting corn.”
In Brown’s view, growth in demand provides little comfort in a market where producers feel that prices are kept artificially low. While a stronger Canadian
dollar has hurt producer returns, he believes the bigger issue is the current U.S. Farm Bill, which keeps the market oversupplied with corn and holds down
prices. U.S. subsidies could potentially be reduced in the new Farm Bill due in 2007. Until then, it’s “wait and see.”
Says Brown: “I would say that we are advising our members to be cautiously optimistic that the ethanol industry will be the saviour in terms of solving the
income issues currently facing our producers.”
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