Ethanol Caps First Yearly Loss Since 2008 as Tax Credit Expires

[Scorpio]

Ethanol Caps First Yearly Loss Since 2008 as Tax Credit Expires

By Mario Parker - Dec 30, 2011 2:23 PM CT

Ethanol futures capped the first yearly loss since 2008 amid ample production and as a 33-year- old tax credit expires.

Futures fell 7.4 percent this year as output (DOETFETH) reached a record 962,000 barrels a day in the most recent Energy Department report and as the 45-cent tax credit provided to refiners for each gallon blended into gasoline expires tomorrow. The biofuel, down 11 percent this quarter, had the worst such period since March 2010.

“You had two contracts expire in an inverted market,” said Jerrod Kitt, an analyst at Linn Group in Chicago. “The market’s kind of priced it in, the sense that discretionary demand could be lower. The tax credit went out with a whimper and not a bang.”

Denatured ethanol for January delivery rose 0.1 cent to settle at $2.203 a gallon on the Chicago Board of Trade.

Under a law signed in 2007, U.S refiners are required to utilize 15 billion gallons of renewable fuels such as ethanol by 2015 and 36 billion gallons, including the cellulosic variety and biodiesel, by 2022.

Corn for March delivery rose 8.5 cents, or 1.3 percent, to close at $6.465 a bushel in Chicago. Prices climbed 2.8 percent this year. One bushel makes at least 2.75 gallons of ethanol.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

http://www.bloomberg.com/news/2011-1...t-expires.html

[glockngold]

$6.465 a bushel in Chicago. Prices climbed 2.8 percent this year. One bushel makes at least 2.75 gallons of ethanol.

$2.35 raw material cost for a gallon of ethanol.
Government subsidized a product's production, then taxed it at the pump to where there is no incentive to buy it.
Somebody help me get off this merry-go-round.

[Tecumseh]

$2.35 raw material cost for a gallon of ethanol.
Government subsidized a product's production, then taxed it at the pump to where there is no incentive to buy it.
Somebody help me get off this merry-go-round.

Does anyone know the raw material cost for a gallon of unleaded fuel from crude oil? My guess is not too much different than above?

I just scanned this but author says $1.90 per gallon of gas if oil is $80 per barrel. So seems very similar.

http://wiki.answers.com/Q/How_much_g...l_of_crude_oil

[Tecumseh]

Also interesting that corn futures didn't fall with ethanol futures.

My other favorite board having some discussion about it....

http://discussions.agweb.com/showthr...ers-Tax-Credit

[Treasure Searcher]

In certain parts of the Midwest, farmland prices have skyrocketed from the bullish corn market.

Now that CRP land is expiring from contracts and the Federal Government is broke and will not enroll as many acres back into the program, more of that land will be broken up into tillable acres.

Subsidies for ethanol have caused a bubble in the corn market. Some farmers in my area are borrowed to the hilt. Especially, the younger farmers. When the bubble breaks, there will be a day of reckoning in the ag sector. Alot of the younger farmers have not been through the rough years.

Uncle Sugar has given out massive farm subsidies. The country is broke and I do not know how the 2012 Farm Bill will be funded. Weaning the farmers off the farm subsidies is going to be entertaining.

When the bubble bursts, I will be looking for a good deal on buying farmland!

[Flake]

I'm just glad I can stop putting food in my fuel tank soon. What a stupid thing to do

[Tecumseh]

In certain parts of the Midwest, farmland prices have skyrocketed from the bullish corn market.

Now that CRP land is expiring from contracts and the Federal Government is broke and will not enroll as many acres back into the program, more of that land will be broken up into tillable acres.

Subsidies for ethanol have caused a bubble in the corn market. Some farmers in my area are borrowed to the hilt. Especially, the younger farmers. When the bubble breaks, there will be a day of reckoning in the ag sector. Alot of the younger farmers have not been through the rough years.

Uncle Sugar has given out massive farm subsidies. The country is broke and I do not know how the 2012 Farm Bill will be funded. Weaning the farmers off the farm subsidies is going to be entertaining.

When the bubble bursts, I will be looking for a good deal on buying farmland!

You are going to miss the boat - we are far from a bubble in the Ag sector.

US Farmer debt to equity ratios are at historic lows...http://www.ers.usda.gov/data/farmbal...eet/fbsdmu.htm

In my areas most farms are purchased by other farmers and often no financing is involved. The two big drivers of farmland prices are interest rates and commodity prices. Hard to say what interest rates will do but the current powers that be do not seem inclined to let them rise any time soon. The long term fundamentals for agricultural commodities are very good. I agree that acreage is going to come out of CRP and that some subsidies may be reduced or ending but the main reason for taking the acreage out of CRP will be to meet demand not because of the value of the subsidies. Read the discussion on the other site - doesn't seem like the producers feel that the expiring ethanol blenders tax credit will have a big impact on corn prices.

All that being said - I agree with you that in certain parts of the Midwest prices have gotten frothy (Northern Iowa)

[earplugs]

I'm just glad I can stop putting food in my fuel tank soon. What a stupid thing to do

i wouldn't eat corn anymore. most of it is gmo these days, and you can be sure that if it's processed, it's made from gmo. go to the store and see all those corn ships, 1 big ole bag for 1.50. guess what's in it (not that you can know for sure because our beloved goobermint forbids such labeling), whereas if you buy some other type of corn (blue corn), a bag half the size of gmo corn will cost around 4 bux.

GMO will looks like another war upon us, and it looks like they'll win. they can make food out or air now (crap really), and then flood the markets with it at super cheap. drive out the real food, make them go broke, and spread their vile disease all aroudn the world. same tactic they used with fiat.

[earplugs]

$2.35 raw material cost for a gallon of ethanol.
Government subsidized a product's production, then taxed it at the pump to where there is no incentive to buy it.
Somebody help me get off this merry-go-round.

that's how our wonderful social engineers "grow" the economy. Instead of one step, it now takes 100 steps. Ever wonder why when working for the goobermint everything takes ten times as long and is done in quadruplicate? It's for the economy.

[Treasure Searcher]

You are going to miss the boat - we are far from a bubble in the Ag sector.

US Farmer debt to equity ratios are at historic lows...http://www.ers.usda.gov/data/farmbal...eet/fbsdmu.htm

In my areas most farms are purchased by other farmers and often no financing is involved. The two big drivers of farmland prices are interest rates and commodity prices. Hard to say what interest rates will do but the current powers that be do not seem inclined to let them rise any time soon. The long term fundamentals for agricultural commodities are very good. I agree that acreage is going to come out of CRP and that some subsidies may be reduced or ending but the main reason for taking the acreage out of CRP will be to meet demand not because of the value of the subsidies. Read the discussion on the other site - doesn't seem like the producers feel that the expiring ethanol blenders tax credit will have a big impact on corn prices.

All that being said - I agree with you that in certain parts of the Midwest prices have gotten frothy (Northern Iowa)

This viewpoint is what is happening in my part of the country. The older farmers in my area have enough equity to withstand low prices and higher interest rates.

The younger farmers in my area are borrowed to the hilt. New John Deere machinery, buying land at astonomical prices, toys, 6X6 ATV's, new Dodge pickups, new SUV's, etc.. The land in my area is bought on loans with variable interest rates.

I know enough farmers that lost everything in the early 1980's. Bought high priced land at 18% interest. Lost it. Lost everything.

What jump started the high land prices and high rental rates for farmland, was in March of 2008. For a time, grain went to $22.00 a bushel. Alot of land went up for sale for prices astronomical.

Farm subsidies have also created a bubble in prices. "The gov't will bail me out" is the attitude of farmers in my area. Bankers will lend farmers any dollar they want. The farmland is collateral. No risk for the bank, as they can foreclose on the land or if the farmer wants to try and keep it, then they may be paying big interest in the future on that loan, too.

It is almost criminal for what subsidies that they get. I know numerous farmers that run part of their farm in their wives name. Name only. She does not drive the tractors. This is to establish another farm to reap subsidies.Some farms have multiple Post Office boxes. Same farm, but different address to create a paper farm to recieve subsidies.

When the subsidies end, there will be alot of whining. I see the bubble where I live and when the bubble breaks, I am going to go shopping for more land.

[Tecumseh]

Not sure where you are at. I'm in Ohio. The other interesting thing going on around here are natural gas and oil plays. 10 years ago you could buy all the recreational land you wanted in SE Ohio for under $1,000 per acre. Very difficult to find any land for sale with mineral rights down there now. I have a friend who is in a land owner group that is hoping to negotiate $4,000 to $6,000 per acre drilling rights PLUS a royalty on whatever they produce.

I got my parcel a little over a year ago. We bid on a second parcel - seller wanted $300k. It was 140 acres of basically timbered out swamp land. Had 45 productive tillable acres on it. We offered $3,500 per acre for the tillable and asked them to throw in the other acreage for free. It also had a broken gas well on it (casing broken and bubbling at the surface). The local Metro Parks ended up buying it for the $300k they were asking. In hind sight we should have been a little more aggressive with our offer.

I don't see a bubble around here - not yet anyways.

[Treasure Searcher]

Where I live, I am a little more pessimistic about farming. The 2012 Farm Bill sounds like a tough sell in Congress. The country is strapped for cash and the farmers are living like kings, while collecting subsidies (subsidized crop insurance, etc.).

Without crop insurance, bankers here will think twice about loaning money to farmers. This is the time of the year for the farmers here to get their income taxes done. After that is settled, they then figure out what it will cost to put in a crop and borrow part of that to prepay for seed, fertilizer, fuel, etc..

I have 160 acres bought and paid for and bought 30 acres this year. Also, in a contract for deed for a second quarter. Bother quarters have the mineral easements free and clear. The old lady that had the one quarter (died at age 91) told me that there was oil in one of the wells, that is why they got water near the creek. Never know what will become of that oil, if it is ever checked out.

Anyway, farmland is a good investment, if you can get it at a good price. Of course, the soil type and other charecteristics determine what can be grown and what to pay for it.

My grandfather disliked insurance companies. During the 1930's farmland in his area was foreclosed on and the inusrance companies ended up with it.

Most land in my area is sold in 80 and 160 acre sizes. When things get tough, I will try to buy 40 acres at a time. I will seek out young farmers that are making a tough go of it. I will tell them that instead of losing the whole 160 acres to the bank, i will buy 40 acres from them and that money can go to the bank to buy land. When the better years come back, there may be a possibility that I could sell it back to them.

Buddy of mine is around 70 years old. His dad ran a gas station during the dirty 30's. People went broke and went to his gas station for a set of new tires, so they could move out of state. The people leaving gave his dad the deed to the farm for those tires. He and his siblings still won that land. Oil drilling going on I that area.

[Tecumseh]

I guess none of us know the future but I think the days of swapping the deed to the farm for a set of tires are gone forever.

I don't know enough about the grain markets to really know where they are going short term - some of the guys over on agweb.com are expecting $4 corn relatively soon. The long term fundamentals seem very sound to me.

I also don't see a repeat of the late 80's in that sector - there are enough guys around who went through that who have protected themselves. I'm a CPA - I see all kinds of people and in general farmers are very financially conservative - they don't expose themselves to debt like a lot of other business people do - the successful ones know that farming is a risky business and they know how to manage or avoid risk. Farmers balance sheets are in far better shape than the last time farmland was in a bubble.

I wouldn't rush out to buy any acreage in excess of $10,000 - even the very best Iowa soil. I also don't anticipate that farmland is going to be come relatively cheap in the near future. I don't think QE is going to allow that.

I guess that is the question - where do you park your wealth while you are waiting for the "bubble" to burst? What is much more attractive than farmland right now as an investment?

[Treasure Searcher]

I guess none of us know the future but I think the days of swapping the deed to the farm for a set of tires are gone forever.

I don't know enough about the grain markets to really know where they are going short term - some of the guys over on agweb.com are expecting $4 corn relatively soon. The long term fundamentals seem very sound to me.

I also don't see a repeat of the late 80's in that sector - there are enough guys around who went through that who have protected themselves. I'm a CPA - I see all kinds of people and in general farmers are very financially conservative - they don't expose themselves to debt like a lot of other business people do - the successful ones know that farming is a risky business and they know how to manage or avoid risk. Farmers balance sheets are in far better shape than the last time farmland was in a bubble.

I wouldn't rush out to buy any acreage in excess of $10,000 - even the very best Iowa soil. I also don't anticipate that farmland is going to be come relatively cheap in the near future. I don't think QE is going to allow that.

I guess that is the question - where do you park your wealth while you are waiting for the "bubble" to burst? What is much more attractive than farmland right now as an investment?

IMHO, the best place to park wealth right now, is in silver.

Had a guy tell me the other day, that his mother went to renew a $125,000 CD. The bank offered her .08%. Not much by leaving it in the bank.