Ethanol Industry Problems

US ethanol firms may scrap plants as margins fall

U.S. ethanol producers may start scrapping plant construction plans after a surge in the cost of corn and a slide in gasoline prices put profit margins into the red, analysts said on Monday.

The outlook could damp a dramatic building boom as the United States looks to boost renewable fuels to reduce dependence on oil imports, eroding industry's plans to double output capacity by the end of 2008.

Anybody with half of a brain could have seen this coming. With the price of corn so high the ethanol industry had to be hurting a little bit. Especially since gas prices have been falling lately pretty fast. It's putting quite a crimp on things.

"Back in July 2006, a new plant would have commanded returns in the 35-40 percent range using $2.50/bushel corn and $2.50 per gallon ethanol," Credit Suisse said.

"More recent prices of $2 per gallon ethanol and $3.50/bushel corn generate implied returns of only 5-13 percent," the report added.

The more plants that are built, the higher corn prices will go and the lower ethanol prices will go. It looks like we are reaching an equilibrium point where there is some profit available but not enough to continue the mad expansion that has been going on.

There is one problem I see with what we are seeing now. Congress and or the President might step in and subsidize the industry further to get them to build more plants and buy more corn. Who knows how high corn prices will go if they do that. Guess what, that's exactly what is being proposed.

Livestock industry nervous as Bush calls for 35 billion gallon RFS

Ethanol backers will get another boost from tonight's State of the Union address, as the White House issued its policy objectives ahead of the speech. As expected, President Bush is calling for an increase in the Renewable Fuels Standard. But few predicted how much of an increase President Bush woudl request. The White House says President Bush will ask Congress to boost the RFS from its current level of 7.5 billion gallons by 2012 to 35 billion gallons by 2017.

The policy statement is already generating excitement among ethanol supporters. But the nation's largest and most politically influential livestock groups want the Bush administration to consider the negative impact high feed costs may have on U.S food production.

It is all fine and dandy to reduce oil consumption and support farmers with higher grain prices, I am all for that. Grain prices can get so high though that it affects people's basic food security. Alternative energy is all fine, maybe some of the goals can be reached by conservation though. Do we have to do it all on the backs of the food we eat? Are the consumers winning by driving up food prices while not significantly lowering energy prices just changing where it is coming from? There is a trade off here that most Americans are not aware of and is going to bite them in the butt. Cellulostic ethanol might be the answer for keeping it off the back of our food industry but that technology isn't here yet. Maybe more funds need to go into R&D for that instead of larger subsides for the corn based ethanol. I'll continue to be a voice in the wilderness letting people know that our food security is in danger with this corn ethanol drive.

I do everything I think possible or acceptable to escape from this trap. Jacques Derrida