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Ethanol on the Rocks



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Today’s WSJ reports (subscription required) on a miserable financial quarter for Archer Daniels Midland, thanks in large part to weak ethanol demand:

Archer Daniels Midland Co. on Tuesday reported an 83% drop in fiscal-fourth-quarter earnings, though the company said it has seen signs of improvement in the global food, animal-feed and renewable-fuels market.

The world’s largest publicly traded agribusiness group by revenue reported a profit of $64 million, or 10 cents a share for the quarter ended June 30, down from $372 million, or 58 cents, a year earlier. Revenue fell 24% to $16.53 billion.

The agribusiness industry has been struggling since commodity prices have dropped from their peak last summer, and ethanol-related businesses have been hurt by slumping demand for the corn-based fuel. Ms. Woertz, however, said oil refiners are blending more of the additive than required by the existing federal mandate, with gasoline demand also above last year’s levels.

Ethanol and risk management had driven earnings until last year’s commodity-markets reversal. The bioproducts business that includes ethanol fell to a loss of $160 million in the quarter from a year-earlier profit of $123 million.

At the oilseed-processing division, the company’s largest segment, earnings fell 40% as volume declined and fertilizer margins fell. The corn-processing division, which includes the ethanol business as well as starches and sweeteners, reported a loss, primarily because of weak ethanol demand.

And if you haven’t already seen it, read my buddy Max Schulz’s latest piece on ethanol, which begins:

If there’s one thing at which Washington excels, it’s crafting unnecessary policies from which a torrent of unintended consequences cascade. Meanwhile, the initial problem policymakers set out to address is relieved in no meaningful way.

That perfectly sums up our nation’s experience with ethanol, which is shaping up as a policy disaster with a significant economic and environmental toll. Yet for all the unintended strife and economic dislocation our ethanol policies are causing, they are having a negligible effect on lowering our imports of foreign sources of petroleum and our oil consumption generally.



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