farmgate: Go Ahead; Try To Get A Warehouse Receipt On Your Field Of Switchgrass!
You are an expert at raising crops and livestock and moving them to market. But with governmental and social demands to produce biomass for fuel, how do you raise it, sell it, and get it to market?
You may be one of those who cross a bridge when you come to it, but some farmers are already starting to cross that bridge ahead of you; and you’re next in line. Biomass and cellulosic ethanol are the next wave of agricultural commodities, and in a few years you may have a warehouse receipt on switchgrass or sell corn stover on a hedge to arrive contract. Iowa State University economist Roger Ginder has studied the corn-ethanol infrastructure to predict what the biomass-ethanol infrastructure would look like. And there are many parallels that can be drawn. Both will fit into a physical infrastructure, such as roads, warehouses, and pipelines. There is also an intangible infrastructure that does not congest like truck lines at elevators, and includes grade and quality standards, price discovery mechanisms, and a regulatory structure.
Corn-ethanol
The physical infrastructure around an individual corn-ethanol plant will probably not be challenged, since there are roads, trucking companies, electricity, water, and telephone service. But when many of those plants suddenly appear on the map, there is a challenge to the infrastructure that is frequently not apparent. Corn-ethanol plants are either in operation or planned in 23 states with the top 5 states being able to produce 4.34 billion gallons annually and another 4 billion is being planned in the next 5 years.
Since those states have long raised corn, the infrastructure is present to haul, dry, store, and load the corn back into the transportation system. The well-oiled intangible infrastructure grades the corn, regulates its handling and storage, and provides the tools to profitable marketing. The advent of corn-ethanol has already begun to challenge the physical infrastructure with quicker turnover in storage as ethanol plants draw down stocks faster, and then put two different products into the transportation pipeline when the ethanol is refined. Early on, the increased corn acreage will challenge the infrastructure for inputs such as fertilizers and crop protection chemicals, as well as an increased demand for seed.
There are numerous concerns about the capacity of the physical infrastructure to handle the ethanol industry:
• Local dry mills have required increased trucking of inbound corn and outbound ethanol and DDGS which congests highways and results in more deterioration.
• Current storage capacity is built for a normal crop of near equal acreage of beans and corn, but with corn’s ability to produce more bushels per acre, storage facilities will be challenged.
• As ethanol production outpaces consumption in some localized areas, the ethanol will have to find rail or pipeline transportation to market, which cannot feasibly be provided.
• Rail transportation of DDGS is limited by rail lines not permitting it because of damage to cars at the point of unloading.
Biomass ethanol
Cellulosic ethanol production is in its infancy, with research increasing and only a handful of pilot plants in operation. Six experimental plants are in construction. Four will use wood waste or chips and two will combine that with yard waste. States producing a lot of corn ethanol would also be expected to produce biomass ethanol, however the greatest potential for biomass ethanol production is in the southeastern states. Much of the corn ethanol infrastructure could be used for biomass infrastructure if adjustments are made, particularly at the point of refining and beyond. It is the production, harvest, and delivery infrastructure that is currently non-existent.
New harvest and handling mechanisms will be required, along with storage facilities. Crop residue would have to be stored for up to a year, and that does not currently exist. Some ethanol plants could be developed where the biomass product, such as wood chips, already exists and handling problems are addressed. For areas of the country with either long or year-round growing seasons, the storage issue could be easily resolved with continuous harvest and delivery. The impact of biomass ethanol production on highways would be increased because the feedstock is less dense and would require more truck traffic to convey the biomass to the refining plant.
The intangible infrastructure also does not exist for biomass ethanol feedstocks, and will have to begin from scratch. Although corn is traded as a grain regardless of its use, there are no regulations for quality, grading standards, or dispute mechanisms in place for either crop or non-crop residue that can be refined into ethanol. Such commodities will have to be produced under contract with the producer and buyer sharing the risk without the benefit of a futures market. Without the regulatory infrastructure, such as warehouse receipts, a higher and more reliable collateral value will have to be established.
Summary:
As corn supplies tighten because of ethanol demands, efforts are increased to shift the burden to biomass, such as grasses, woodchips, or citrus waste. However, the handling and transportation problems with biomass feedstock remain unresolved, along with pricing, and other intangibles. Even with corn-ethanol, there are an increased number of infrastructure problems, and most of those will increase as a shift is made to biomass.
Posted by Stu Ellis on July 30, 2007 12:51 AM to farmgate