Rich Keller, Editor, Ag Professional  |   August 2, 2012 resize text

At a time when there are complaints about corn being used for ethanol production and the price of corn as a feedstock is making ethanol production unprofitable, there is economic-based discussion about Argentina jumping into corn ethanol production at a high level. 

Argentina is one of very few countries that both exports corn and imports gasoline and diesel. “This combination means that an Argentine ethanol plant will pay less for feedstock and receive a higher price for ethanol than an ethanol plant located in a country that imports feedstocks and exports motor fuels,” notes Bruce Babcock and Migurel Carriguiry in a report, “Prospects for Corn Ethanol in Argentina.”

“Argentina is the world’s second-largest exporter of corn. This export status, when combined with high internal transportation costs, lowers the price of corn in the major production areas of Argentina. In addition, Argentina’s farmers need to plant more corn to create a more sustainable balance between corn and soybeans. In particular, in Argentina’s northern production regions, the large amount of crop residue from increased corn plantings is needed to help build soil quality. Thus, there is significant potential for expansion of corn in Argentina, which makes corn an even better feedstock for ethanol,” wrote the authors as part of their report summary.

Babcock is the Cargill endowed chair of energy economics, director of the Biodiesel Industry Center and a professor of economics at Iowa State University. Carriquiry is an associate scientist at the Center for Agricultural and Rural Development (CARD) at ISU. The report is a CARD staff report.

“The variable or direct cost of converting a ton of corn into ethanol in Argentina is comparable to conversion costs in the United States, with the exception that natural gas costs more in Argentina. For a plant that does not dry distillers grains, conversion costs would be approximately $40 per ton of corn processed. Drying distillers grains adds about $10 per ton. The domestic price of corn in Argentina not only reflects the cost of transporting corn from the interior to Rosario, but it also reflects the effects of export taxes and the need to obtain government permission to export. Over the period from October 2010 to March 2012, the cost of corn to an ethanol plant in the state of Iowa in the United States averaged $110 more per ton than the local price of corn paid to farmers in Córdoba over the same period, and $140 more per ton than the Salta corn price,” the authors further explain.

“Argentina also has a large livestock sector that can readily use distillers grains from corn ethanol plants. Plants that are located close to cattle operations can sell wet distillers grains to these operations thereby saving the cost of drying. Plants that have dryers installed can export distillers grains. Livestock producers in many countries have learned how to use imported distillers grains from U.S. ethanol plants over the last few years, so Argentina would have the ability to export dried distillers grains,” they conclude.

In the report, the two authors note that “Argentina could produce between 4,000 and 6,000 million liters of ethanol before its status as a corn exporter were threatened. This level of production far exceeds the potential demand for ethanol in Argentina.”

The problem that grain farmers have in Argentina is a harsh regulatory climate related to export and import of agricultural products. Argentina could become an exporter of ethanol but the regulatory situation would have negative impact on the potential size and profit of such sales, it is noted by the authors.

As referenced in the summary, Babcok and Carriguiry explain that it is difficult to find consistent buyers in the interior of the country. And even as corn prices were climbing around the world, corn from the 2011 crop was unsold because of problems with selling and shipping. As of April 2012, the report was that considerable 2011 crop was stored in plastic bags (silobags) in the fields. This means an ethanol producer market within vicinity of the production would seem logical.

Additionally, a corn and soybean rotation in cropping would improve the land. Soybean production has expanded greatly while corn production has not nearly kept pace. “While producers are well aware of the need to increase the area of corn in order to sustainably continue their high levels of soybean production, they are reluctant to plant the crop as the economics and additional distortions introduced by policies make it very unattractive,” the economists explain.

Babcock and Carriguiry contend that “low priced corn implies a low feedstock cost for an ethanol refinery, which is one of the keys to success in this industry. This, together with the desire of corn producers to increase domestic demand, is leading corn producers and other potential investors to evaluate the possibility of investing in corn ethanol.”

But there are no guarantees of success for various reasons. “Fluctuations in the world price of corn are directly transmitted to fluctuations in Argentina’s domestic price of corn. Thus, although profit margins for corn ethanol plants should be higher than profit margins for corn ethanol plants in the United States and other countries, variability in profit margins will be quite similar to that experienced by other plants,” Babcok and Carriguiry conclude.

To read the whole report click here. 

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