What a difference a year makes.
Last year when oil prices were high and corn prices were low, writes Forbes Magazine, there was a corn rush as ethanol producers and small farmer cooperatives reaped huge profits distilling corn mash into fuel.
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What’s more, ethanol distillery construction throughout the U.S. attracted huge sums of money from Wall Street to Australia. In addition to the 111 ethanol distilleries now operating, Forbes says 75 are under construction.
Everybody thought they could become the new Saudi oil barons of Champaign, Illinois, said the president of AgResource.
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But things have changed. Corn prices have spiked to double what they were in the past six months, ethanol prices collapsed and more ethanol supply is coming online. So now, in a quick reversal, the ethanol makers who made so much money last year are on track to start losing money by the end of this year, the source opines.
Of course this could still change if the ethanol industry gets a boost from the federal government which the Ag Resource executive says is "a distinct possibility,” especially considering that the federal government and President Bush are focused on ending the country’s dependence on foreign oil.
The federal government already supports ethanol with a tax subsidy equivalent to 51 cents per gallon of ethanol, Forbes reports. What’s more, helping the business are environmental mandates and energy dependence mandates.
"Absent a rescue from Capitol Hill, the glut is going to get worse,” states the recent Forbes article.
Ag Resource’s president estimates the blending demand for ethanol at 10 billion gallons, 7 percent of the 150 billion gallons of blended fuel burned annually. Current nationwide ethanol capacity is 5.4 billion gallons, but 6.1 billion gallons’ worth of capacity is currently under construction. That would mean there was an excess of ethanol supply compared to demand, and that would push ethanol prices down even further.
Under current federal law, the independence minimum for ethanol comes to 4.7 billion gallons this year and 7.5 billion gallons in 2012. But President Bush is already considering boosting that mandate by 60 billion gallons by 2030. In addition, two Senate bills have already been introduced that would provide tax credits for high-ethanol fuel pumps, refineries and other biofuels production.
There are winners and losers in this scenario, notes Forbes. The obvious winners would be ethanol producers. Other potential winners include agricultural equipment makers like John Deere.
Among the losers, the article points out, are companies that raise livestock that eat corn, people who buy meat, taxpayers and drivers.
And although environmentalists are uneasy about ethanol, none of there concerns "will necessarily prevent the politicians from bailing out the distillers,” Forbes states.
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