Saturday, December 02, 2006

 

A commodities trader takes on ethanomania


Ethanol skeptic sees painful realities ahead

http://www.journalstar.com/articles/2006/11/30/local/doc456e13dc546e6066474346.prt
BY ART HOVEY / Lincoln Journal Star
Thursday, Nov 30, 2006 - 12:07:16 am CST
What he can’t see coming from his seventh-floor office window in
downtown Lincoln, Doug Carper can usually piece together on the four,
super-sized computer screens at his desk.

Having pored over all the charts and graphics, and having weighed the
numbers against his many years as an agricultural commodities broker,
the 56-year-old Carper sees trouble coming for Nebraska’s ethanol industry.

He sees more of the same for much of the agricultural economy that
supports ethanol.

“I’m not posturing. I have no agenda,” Carper said in a Tuesday
interview in his office. “I see trouble looming here in the American
heartland and a lot of good, well-intentioned people facing some
terrible and ruinous losses.”

His sense of trepidation may seem completely at odds with recent reality.

Expansion in the ethanol industry in Nebraska is proceeding at an
unprecedented pace. Corn prices are rising. Congress seems poised to
expand its mandate of renewable fuels.

But circumstances that lead others to conclude there’s money to be made
by aggressive investment have Carper thumping his desk so hard pens leap
in the air.

“For what constructive purpose are we disrupting agriculture in this
manner?” he asked. “For what constructive purpose have we embarked on
this dangerous public policy initiative?”

As far as Carper is concerned, there is no constructive purpose to
putting so much emphasis on ethanol as an answer to shrinking energy
resources.

Even if every bushel of corn in the United States were turned into
ethanol, it wouldn’t make much of a dent in overseas oil dependence, he
said.

“It’s a delusion that somehow we are solving the country’s energy needs
when, in fact, at the extreme, ethanol could never be a substantial
solution to the nation’s energy requirement. It’s patently wrong and
absurd to think we can.”

Beyond that, he sees so much emphasis on ethanol leading to higher food
prices. He sees what he called a tremendous negative effect on the
state’s cattle feeders, possible disruption in the food distribution
system and some substantial portion of new ethanol plants failing to
make a go of it as profit margins inevitably narrow.

How sure is he he’s right about that last point?

“As sure as I can be that poorly capitalized, shakily managed companies
almost always have a fairly high fatality rate.”

With politicians of every political stripe singing ethanol’s praises,
Carper knows how hard it is to make criticism heard. Maybe that’s why
his voice tends to rise in volume as he refers to what he describes as
“the realization phase” and replies to questions that call for some detail.

“We’re going to need the largest year-to-year increase in corn
production,” he said.

“We’ve never shifted more than 3 million acres in history. And we’re
going to need 6 or 7 million, if not 10 million acres, this (next) year.”

Furthermore, counting so heavily on ethanol as an energy answer leaves
no room for a poor crop, he said.

“You can only imagine that the job next year becomes even more
difficult, because we continue to ramp up. ... We’re simply raising the
bar and raising it every year.”

Nebraska will pay a price in increased irrigation consumption, in
removal of erodible acres from the Conservation Reserve Program, and in
less obvious ways, he said.

“Farmers are good stewards of the land,” he said, “but money talks.”

At distant points that count on the United States for corn exports,
hunger will be a result of what he describes as a food or fuel fight.

“You won’t go hungry. I won’t go hungry. But somebody will go hungry.”

Don Hutchens, executive director of the Nebraska Corn Board, sees no
reason, so far, to worry about ethanol causing corn producers to fall
behind in efforts to keep up with the state’s corn demand.

“If we look into what we know is under construction in Nebraska today
and at the picture as it might look in three years, I’m not very nervous
about that aspect,” Hutchens said.

Nebraska exports about 420 million bushels of corn per year, he said.
More ethanol means more value added to a product that stays at home.

“I think, economically, we become much better off than to load it on a
rail car to the international marketplace or to another domestic location.”

What about hunger in far-off places? Hutchens answered with another
question: “Is it the responsibility of the Nebraska corn farmer to keep
prices as low as he possibly can so no one in the world has food
availability issues?”

Back at Carper’s office, a much more skeptical ethanol watcher cites
“the most bullet-proof scheme that any lobbying group ever devised in
such a short period of time.”

And he said he’s not vulnerable to accusations of occupational ax grinding.

For whatever influence ethanol may have on grain trading, he’s out of
that business now and into managing other people’s money.

But his previous occupation, which he took up at age 22, gives him some
historical frame of reference on remarkable and uncertain times for the
nation’s ethanol-energy connection.

“We’re really embarking on uncharted territory,” he said. “In all the
years I’ve been trading, I’ve never seen anything like it.”

/Reach Art Hovey at (402) 523-4949 or ahovey@alltel.net
<mailto:ahovey@alltel.net>./


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