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Wall Street Focusing on 'Cellulosic Ethanol' from Crop Wastes

http://online.wsj.com/article/SB115154654862893860.html?mod=todays_us_page_ one , writing in today's Wall Street Journal, reported that, "The effort to make cellulosic ethanol into a full-blown power source to run America's cars is embryonic, and its outcome uncertain. But the fuel has two big things going for it: High oil prices and backing from the Bush administration, which sees it as a potentially important part of future energy supplies and is putting up money to help launch the first Obiorefineries' to make it. Adherents think it could reduce U.S. dependence on imported oil, cut emissions that cause global warming and shore up the nation's rural economy. Already, the race is attracting big names, with the likes of Archer-Daniels-Midland Co., Royal Dutch Shell Group and Goldman Sachs Group Inc., investing time and seed money.

"In the U.S., ethanol for fuel is typically made from corn. But growing corn gobbles up a lot of power in the form of everything from fertilizer to pesticides. The economics of cellulosic ethanol, made essentially from waste, could be different. With the booming economies of China and India helping increase the world's appetite for petroleum faster than new sources of fossil fuel can be found, economists figure there will be a need for tens of billions of gallons of alternative fuels within just a few decades."

The article went on to say that, "ADM, already the nation's biggest maker of ethanol, is using some federal funds to figure out how to convert more of the corn kernel into ethanol. While much of the kernel is readily convertible to sugar, the hull contains fiber that the Decatur, Ill., grain-processing giant's ethanol-making microorganisms can't use. Figuring out how to convert the fiber into more sugar could increase the output of an existing corn-ethanol plant by 15%.

"ADM executives want government help to build a plant that could cost between $50 million and $100 million. Thomas P. Binder, president of the ADM research division, says the company has one leg up on others trying to crack the cellulosic ethanol code: ADM wouldn't have to figure out how to collect a new source of biomass but merely use the existing infrastructure for gathering corn."

The Journal also shed some light on the politics involved in this issue, saying, "The energy bill passed last year mandates the first use of cellulosic ethanol, 250 million gallons by 2013, and allows federal loan guarantees for new cellulosic biorefineries. Congressional committees are considering additional incentives, and President Bush has made the effort the centerpiece of his energy strategy.

"Until now, corn growers have jealously guarded subsidies for the corn-to-ethanol industry, which last year consumed 14.4% of their crop. Advocates for going beyond corn were overshadowed by the political punch of the corn lobby.

"But the arrival of $3-a-gallon gasoline has helped persuade Washington, and many of the farmers who own shares in ethanol plants, that the industry is outgrowing the corn crop. Already demand for ethanol -- now used both to stretch gasoline supplies and as an oxygen-rich additive to make fuel burn more cleanly -- is so strong that many of the nation's 101 corn-ethanol plants are generating 35% returns. That is helping fuel a building boom that could double the size of the industry by 2008."

Developing the political issue further, the Journal article also indicated that, "One downside: The boom is pushing up the price of corn. Agriculture Department economists expect the value of this year's corn crop to climb roughly 20% over last year, lifting the soft-drink industry's tab for corn sweetener, as well as the cost of fattening cattle, hogs and chickens. Largely due to ethanol, futures traders at the Chicago Board of Trade are bidding the price of the 2007 corn crop above the $3 a bushel level. Farmers in central Illinois are being paid a little more than $2 a bushel now. 'We're seeing a demand shock in corn markets,' says Michael J. Swanson, an economist at Wells Fargo & Co.

"As a result, the Renewable Fuels Association http://www.ethanolrfa.org/ , the group that lobbies for the ethanol industry, is now helping to build a political coalition for cellulosic ethanol. Beyond farm groups and agribusiness -- the traditional allies for corn-based ethanol -- some strange bedfellows are coming together: environmental groups, biotechnology firms, some major oil companies, chemical giants, auto makers, defense hawks and venture capitalists.

"They're pushing the White House and both parties on Capitol Hill to create new subsidies and mandates to promote cellulosic ethanol. 'This is on everybody's radar screen,' says Agriculture Secretary Mike Johanns."

The Journal article also included this helpful graphic http://online.wsj.com/public/resources/images/P1-AF116_ETHANO_2006062821022 1.gif  regarding ethanol production.

With respect to the competition for corn, earlier this week, DTN Reporter Chris Clayton reported that (link requires subscription http://www.dtn.com/agriculture.cfm?sidenav=sn_ag_producer&content=ago_t rial ), "As Nebraska hog producer Joy Philippi left the World Pork Expo earlier this month in Des Moines she realized fellow hog farmers around the country have growing angst about the potential competition they face for corn, the main feedstuff for hogs.

"Philippi, president of the National Pork Producers Council http://www.nppc.org/ , said she was 'literally shocked' at the number of hog producers who raised concerns that ethanol demand may drive up corn prices and squeeze the supply for livestock producers.

"'We hear all the benefits of corn contracting at a higher price, but we've got to pay a higher price, too,' she said. 'Our producers are getting nervous. We've got to have whole corn to put into our rations.'

"As ethanol production has increased, livestock producers also have increasingly used distillers grain from ethanol plants as a feed source. While beef and dairy cattle have been able to effectively replace a high percentage of corn with distillers grain, hogs and poultry depend more on whole ground corn that has not been distilled for ethanol."