Consumer pain at the pump has prompted a variety of responses from the public. One recurring theme is the notion that ethanol and corn producers should somehow single-handedly save the American consumer from the high price of energy.
It's important for consumers to understand that the price of ethanol is not related to the price of corn anymore than the price of wheat is related to the price of Wheaties. The price of a product is more closely related to the market into which it is sold rather than the raw commodity from which it is made. Therefore, ethanol will be most influenced by the petroleum market into which it is sold rather than by the corn market.
There also seems to be some expectation that ethanol plants, which are owned primarily by farmers, will give the American public a break on their fuel. However, there is not much expectation from the petroleum companies to do the same. When Exxon posted a 60 percent increase in profits for this past year, it was accepted as "Big Oil" doing business as usual.
There is no doubt that the ethanol plants are doing very well. The strong economic return of ethanol plants also explains why last month's equity drive for an ethanol plant in South Dakota resulted in a situation where people came with checks and were turned away. Within an hour the project raised enough from those who had gotten inside the building before the fire marshal ordered that no more people could enter the building.
Minnesota and South Dakota producers and investors from main street see their investment in local ethanol plants as a hedge against high fuel prices. These investors are contributing toward their own local economies, not foreign economies.
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Intentionally, ethanol detractors portray ethanol as an inferior fuel product. The reality is that ethanol is a superior product at 134 octane per gallon. Adding 10 percent ethanol to 84 suboctane gasoline increases octane to 87 and adding 10 percent ethanol to 87 octane regular increases octane to 89 octane.
Retailers have sold fuel on octane for years but the idea that ethanol should actually cost more based on octane has been hard to accept by many. In addition, ethanol yields 67 percent more fossil fuel energy than is used to grow and harvest the grain and process it into ethanol. In contrast, refined gasoline produces 15 percent less energy than it takes to produce.
Another point is that fuel prices can be influenced by each party that handles the fuel, from the plant to the terminal to the retailer, so it's not always so easy to figure out where the price is most influenced.
In 2004, the use of ethanol reduced the U.S. trade deficit by $5.1 billion by eliminating the need to import 143.3 million barrels of oil. Since 2000 ethanol production in the U.S. has increased 109 percent. This booming industry boosts U.S. household income by $4.4 billion per year and added more than $25.1 billion to gross output in the U.S. economy in 2004.
We all have an opportunity to become part of the solution instead of part of the problem. Each one of us has contributed to our dependence on foreign oil. Taking a swipe at the nearest target, the North Dakota corn producers, because they are closer than the Middle East, is not going to get us anywhere.
On behalf of the North Dakota Corn Growers, thank you to the driving public for making it possible for E85 and ethanol sales to reach record levels in North Dakota. It only makes sense to do our part by picking the pump with locally grown and produced ethanol. In the long run our corn farmers, our local communities, our environment and even perhaps you as an investor, will benefit. By working together we can build our rural and state economies rather than support foreign economies.
Iszler, Fargo, is executive director of the N.D. Corn Growers Association and the N.D. Corn Utilization Council.
