The Way I See IT

Production growth ushers in markets
By Mike Bryan | December 01, 2002
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2002 was certainly a year of rapid expansion in the ethanol industry. The question has been poised numerous times during the last twelve months: "Is the ethanol industry overbuilding?" It seems to be the concern of some - but not all - that given our industry's rapid expansion, we may create a glut of ethanol and be forced to reduce prices to move it. Certainly there are others who are equally convinced that "If you build it they will come," to use the underlying theme from that widely acclaimed flick, Field of Dreams.

Could the field of dreams theme happen in the ethanol industry? We sell into a 127-plus billion gallon gasoline market and demand continues to grow. The ethanol industry has a nameplate capacity of 2.7 billion gallons and an actual production record of just over 2.3 billion gallons. So we are currently supplying roughly 1.8 percent of the total gasoline demand in the United States.

Something I've learned over the years is that if there is one factor that diminishes the interest of a gasoline marketer to switch to ethanol blends, it is lack of supply. We see that time and time again in the market. The question often is: "Can you guarantee the supply will be there on a consistent basis at fair market value over a long period of time?" Unless we can provide that guarantee, it makes it difficult for gasoline marketers to make the investment in switching to ethanol blends.

Sure there could be some lag time between increasing the production of ethanol and developing new markets. But I have to believe that the production has to come first or the markets cannot be effectively developed. Without the production capacity, we can make no guarantee that the product will be available year in and year out at fair market value. Certainly it puts the pressure on ethanol marketers to develop new opportunities, but it certainly seems that those opportunities tend to present themselves more often when the product is available. Full tanks often create ingenious sales techniques.

I'm fully aware that there are those in the industry who will not agree with me on this. I just happen to be convinced that you cannot sell from an empty wagon. Let's keep the production growing. Let's develop good sound projects that make financial sense and let's continue to build an industry that always pushes new market horizons. Let's not wait to see what happens in the market and then build to supply that market, but build supply and make the market happen. Because in reality, it is not a field of dreams, but a preemptive business approach of acting on the market rather than reacting to it.
Have a healthy and prosperous New Year!

Mike Bryan
President, BBI International