Many positives for Argentina ethanol production
“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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