BioFuel Energy adds 230 Mgy capacity with two new corn ethanol plants in Minnesota, Nebraska

In Colorado, BioFuel Energy commenced corn ethanol production at Wood River, Nebraska, and Fairmont, Minnesota, with a combined capacity of 230 Mgy and 720,000 tons of distillers grains.

The openings are the first since a corn crisis erupted in the US after heavy rains and floods rocked the Midwest.

Corn crisis background

Heartland Ethanol announced that the company has scrapped plans to build seven 55 Mgy corn ethanol plants in Illinois, and will be dissolving the company, as a result of rising feedstock prices. The 385 Mgy multi-project cancellation is the largest yet announced as fallout from the Midwestern floods that have pushed up corn futures more than 30 percent in under a month. VeraSun Energy announced earlier in the week that it would delay construction at two plants representing 220 Mgy in capacity.

Credit Suisse analyst Mark Flanney dropped his 2008 ethanol capacity forecast from 10,000 Mgy to 9500 Mgy as a result of the feedstock crisis. The Renewable Fuel Standard requires 9 billion gallons of ethanol to be blended this year and 11 billion gallons in 2009. Meanwhile, the Renewable Fuel Association said that 400 Mgy in production capacity had been sidelined by the floods.

“There is no question that the rains in the last couple of weeks have taken a toll on the crop,” AccuWeather meteorologiest Dale Mohler told Marketwatch. “The corn probably has been washed out of the fields or is simply under water and just rotting.”

The US Department of Agriculture revised its 2008 corn crop forecast to 11.735 billion bushels, a 10 percent drop from 2007 and a 3 percent drop from the May forecast, owing to cold weather and rain. The report said that 2008 corn inventories were expected to drop to 673 million bushels by early 2009, a drop of 12 percent from last year. The weekly crop summary indicated that 89 percent of the annual corn crop had emerged, nine percent less than the 2007 rate. In other news, the USDA projected that soybean production would jump 20 percent from last year, but planting was also running more than 10 percent behind last year’s schedule owing to bad weather.

Wells Fargo Senior Agricultural Economist Michael Swanson projected that US farmers would plant 88 million acres of corn in 2008, and that demand in Nebraska from ethanol producers would exceed 1 billion bushels.

In 2007, farmers achieved a nationwide yield of 155.8 bushels per acre, and with yields improving 1 percent per year on the historical average, this equates to a 13.85 billion bushel corn harvest.

With oil prices expected to stay above $90 per barrel, and closing at more than $100 per barrel this past week, Swanson said that the price of corn has increased to more than $5 per bushel on futures boards, making the potential value of the US corn crop more than $69 billion, up from less than $30 billion in 2004.

The USDA recently confirmed its 2007 corn production estimate of 13.3 billion bushels, rand educed its projected use of corn by the ethanol industry in 2007-08.

The revised 2007-08 corn ethanol forecast is 3.2 billion bushels, down from 3.4 billion forecast in August. For the year ending August 31, 2007, the corn ethanol industry used 2.1 billion bushels. At current industry yields of 2.7 gallons per bushel, this translates to 8.6 billion gallons of ethanol.

The USDA’s Office of the Chief Economist released 10-year projections for agriculture. The online version is available here. The report projects a very strong outlook for world agriculture including high petroleum and energy prices, a profitable outlook for corn-based ethanol, increased global interest in biofuels production, falling US soy production, and a reduction in meat production through 2013 before a return to growth in 2014.

In the short-term, the USDA reports that soybean reserve stocks have plunged, creating conditions for further biodiesel feedstock price increases, but corn shortages eased in December according to the USDA. For December 2007 compared to December 2006, corn stocks were 10.3 billion bushels, up 15 percent. Soybean stocks were 2.33 billion bushels, down 14 percent, while wheat stocks fell 14 percent to 1.13 billion bushels.

Providing more background to the reserve stock shortages, the International Food Policy Research Institute recently released a report saying that the world is eating more food than it produces, and that biofuel production runs the risk of creating social unrest. The report projected a 66 percent increase in the price of corn and a 50 percent increase in oilseed prices by 2020, attributed to biofuel production. The report also said that global cereal stocks have fallen to their lowest levels in more than 15 years.

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