The ethanol industry has seen growth followed by leveling off, facing pricing pressures and competition from other technologies. While corn is the primary crop used, any crop rich in starch can be used. The industry enjoyed growth in the early 2000s but faced challenges with higher corn prices and less incentive for alternatives. The outlook for corn-based ethanol is not positive, and researchers are looking at other starchy crops like weed as a potential replacement.
The ethanol industry is one that has seen tremendous growth as it got out of its infancy, followed by leveling off as it matured. While the industry and its process holds some promise in helping curb fossil fuel use, it is going through a series of growing pains caused mainly by pricing pressures on two different fronts. Furthermore, with the advent of competing technologies, the current ethanol industry will be forced to find a way to adapt, or risk not surviving.
While most of North America understands that corn grain is the primary crop used by the ethanol industry domestically, it is not the only source of ethanol. Almost any crop, but especially those rich in starch, can be used for ethanol. Indeed, in more temperate latitudes, such as Brazil, the ethanol industry mainly uses sugar cane. In fact, this is a much better choice than corn, as it has more starch by weight and therefore more energy.
In the early 2000s, the industry enjoyed unprecedented growth as safe gasoline additives were sought after, especially in light of the breakthrough against MTBE additive, which was considered toxic to the environment. Low corn prices and high oil prices made a perfect combination for the industry, and plants were built across the Midwest at a record rate, nearly one every two to three weeks in some Midwestern states. The ethanol industry seemed like a very attractive investment in those days. Demand for renewable fuel sources, which included not ethanol but biodiesel, would surely continue to grow.
However, like most business ventures, the ethanol industry is not immune to certain pricing pressures. The fact that so much corn was consumed in North America led to higher prices for corn, thus reducing the profits that ethanol was offering. Also, as crude oil fell off its record highs, there was less incentive for people to consider alternatives. In other words, at the same time the product was becoming more expensive to produce, losing value and market appeal.
In the latter part of the decade, market conditions impacted the entire industry worldwide. Oil is traded on a global market. While corn prices generally move based on conditions in a given region, they all tend to follow the same upward or downward trends over time. This is because wheat is also increasingly becoming a global commodity. The part of the ethanol industry best suited to survive will likely be the one that survives such perilous times.
Therefore, the outlook for corn-based ethanol is not terribly positive. The only thing currently protecting the industry in the US is a high tariff on Brazilian sugar-based ethanol. To help, researchers are looking at other starchy crops like weed, which could one day replace corn ethanol in many manufacturing plants. However, this process, both research and development and the modernization of facilities, will take time.
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