THE U.S. CORN ETHANOL BOONDOGGLE: Producing 1 Million Barrels Per Day Of Unprofitable Energy

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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tygertgr
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tygertgr

I hear that shale and ethanol are intertwined in a way you didn’t touch on. The ethanol is needed as an octane booster to turn shale heavy blends into good enough gasoline.

The biggest problem with ethanol, in my opinion, is these people ruining the topsoil. Took a few million years go build up, hey let’s just destroy this precious resource it in less than a century for tiny profits.

Quixote2
Guest
Quixote2

The ethanol from corn problem will take care of itself this year with the collapsing corn production caused by the rains/wet spring in the midwest. The US corn production will be down by 40% or more (my estimate). President Trump will terminate (short or long term?) the ethanol for fuel program to provide supply for other uses. I have also read projections that the price for corn will double by this fall. Terminating the ethanol program will alleviate price increases for food, including livestock, production. China is the world’s second largest corn producer and is estimating a 50% reduction in… Read more »

EP
Guest
EP

Ethanol is rife with fraud. From the building of these facilities, to the subsidies they collect and at borders, more fraudulent activity going on…. This articles highlights activities where trains crossed the US-Canada border 40 times in a row to collect a subsidy..

https://www.cbc.ca/news/canada/biofuel-credits-behind-mystery-cross-border-train-shipments-1.1252080

marmico
Guest
marmico

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.

Standard dazed and confused zerodeadhead contribution. It was spent on televisions and computer hardware/software. See BEA Table 2.4.6U.

From Canada Eh
Guest
From Canada Eh

It’s easier & cheaper to make fuel from industrial hemp … I.H. has aprox. 800% more bio-mass per acre vs. corn … Henry Ford & Rudolph Diesel were early developers of Hemp fuel – but virtually nonbody knows about the technology – and Oil companies prefer it that way.

Jessy James
Guest
Jessy James

Cannifornia knows!! We got plenty of desert to grow hemp and the snowpack is well above average. Let the Chinese slap tariffs on our alfalfa. LMAO! JK! We will soon embark on the worst economic disaster since the Great Depression.

Mike Shellman
Guest
Mike Shellman

America is wasting its valuable crop land, seed, water and fertilizer, doing THIS while at the same time we are exporting 3 1/2 MM BOPD of shale oil to Asia for $20 per barrel discounts to Brent…and pissing off over 1 BCFGPD up flare stacks in the process. All of which is occurring on credit/debt that likely won’t ever be paid back.

Our nation went to lunch about its energy policies about 25 years ago and never came back. Its beyond stupid.

Good writing, Steve!

Stephen A
Guest
Stephen A

I guess greedy Americans don’t value lives that are lost in the Middle East by our American soldiers defending oil . I would much rather depend on home grown fuel and help create American jobs.

Brant Lee
Guest
Brant Lee

Corn got a bad name from the way it’s being used. Soft drink companies switched from cane sugar in the ’80s to High-Fructose Corn Syrup. Problem is, it made peoples butts so wide doors are wider these days along with causing rampant diabetes.
As for gasoline, it’s hard for engine makers of all types to get it right(cars, lawnmowers, etc) because ethanol, with several blends, part of the mixture evaporates at different rates throughout the country.

Crude Dude
Guest

Twelve years ago I was a huge ethanol fan. The good thing about my interest in ethanol was that it lead me to study the whole energy issue, economics, and precious metals. It is actually the avenue by which I discovered this site, SRSrocco. The big reason I thought it was a good idea is that all the ethanol was produced in the U.S. and it cut down on imports. It provided jobs and monetary infusion to rural communities across America. However, after a couple years I realized that it just did not make sense. I believe it does make… Read more »

John G
Guest
John G

Has the energy to produce the seed corn, ship it, supply fertilizers, build & maintain farm equipment, etc… been included in Ethanol? If not, the EROI might be negative.

Ger Kort
Guest
Ger Kort

The all out craziness in the world’s debt-economy’s can only exist because of the ultra low interest rates which are declining since 1981.

DisappearingCulture
Guest
DisappearingCulture

Bourbon is made from at least 51% corn. Grown the varieties used in bourbon and make massive amounts more. It’s our largest spirits export. Let’s sell much more to Japan, China,Europe…they can’t get enough of it. Now there’s the corn ethanol I’m talkin’ about.

Adam
Guest
Adam

Steve, I still get into arguments about this boondoggle with people. They just don’t understand and they most likely never will. Now that this planet is likely entering into a grand solar minimum (which I have feared happening for over the last 10 years) which most likely will shortened growing seasons by weeks will put tremendous pressure on the system.

JOHN FOLEY
Guest
JOHN FOLEY

“more than a million barrels of extremely low EROI ethanol fuel a year.”
Not a comment, but just wondering if this was a typo on your part. Shouldn’t this be more than 350 million barrels. If I’m wrong , apologies. If right, maybe a quick editing correction.

Thomas Malthaus
Guest
Thomas Malthaus

“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.”

I agree. I also submit production and inclusion into food of HFCS has contributed to a widespread obesity epidemic.

Is President Trump more covincing than the food lobby?

DisappearingCulture
Guest
DisappearingCulture

The whole government-supported/subsidized ethanol industry may have some elements in common with public works projects in the depression; some good was done, paychecks were generated, and some of the projects more like fluff or unnecessary…a relative lack of anything substantial coming from the expenditure.

Carl Richardson
Guest
Carl Richardson

Ethanol has ruined real gasoline in small engines . The story of requiring 10% in a gallon of gas was a political move to boost sales of corn for the US Farmers . The Government has trashed our real gasoline .

pdxr13
Guest
pdxr13

Oh yeah. Ethanol is horrible in anything not 4 stroke and water cooled.

A. Lurker
Guest
A. Lurker

I recall reading an appropriate definition like: “corn ethanol is a process that turns fossil fuels into votes”

BrianOx
Guest
BrianOx

That’s because the Iowa Caucus is 1st every Presidential primary season

Rodster
Guest
Rodster

Steve the point I was making regarding Climate Change is that people focus on stuff that’s in the future. Whereas we should be focusing on the stuff in the here and now that would be worse than Climate Change. Such as killing our oceans by dumping plastics, garbage, toxic chemicals and nuclear waste into the oceans. We now have ocean dead zones, not because the water has gotten warmer but because of all of the crap we dump in the oceans. If anyone thinks the US selling it’s recyclables to China, India and other Eastern countries are actually recycling 60%… Read more »

pdxr13
Guest
pdxr13

E10 wrecks older engines like my 1995 Chevrolet Caprice LT-1. GM specifically says to not use more than 5 percent alcohol fuels. Not to mention that alcohol sucks up water then grows scum in the fuel, jamming the filters. Not to mention that the engine runs poorly and makes less power while using the same or more fuel volume.

JohninMK
Guest
JohninMK

That water also rusts steel fuel lines and tanks. We only have 5% so far here in the UK but they are talking about 10%.

marmico
Guest
marmico

Steve says:

LET’S CHECK NOTES IN 5-10 years.

Let’s check notes from almost 6 years ago.

The Coming Bust of the Great Bakken Oil Field
https://srsroccoreport.com/the-coming-bust-of-the-great-bakken-oil-field/

An abysmal forecast.