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Shedding light on ethanol's future the goal of new industry study

Agriculture.com Staff 06/07/2007 @ 2:50pm

Ethanol industry returns may be bullish these days, but only time will tell whether the current business structure will yield sustained profitability into the future. A lot can change in the next few years as the industry continues to mature.

It's the direction of the industry, the variables involved in its future path and what those variables will mean to ethanol stakeholders that are the targets of a new study to be conducted by the Hale Group, a food industry consulting firm. The multi-tiered study is slated to begin later this summer, with a completion date around November 1.

According to Robert Ludwig, principal and agribusiness consultant with the Hale Group and leader of Ethanol 2012: Facing the Forces Changing the U.S. Ethanol Industry, the research will comprise analysis of four primary variables at different levels and how they interact with one another. Those variables are:

  • Corn price
  • petroleum price
  • policy issues
  • production technology

"We'll be creating scenarios looking at all of these contributing factors, and we'll look at the implications for the industry under each of these scenarios," Ludwig says. "The final scenarios will be based on our analysis of what will go into the four major driving forces."

The outcomes of the study, which will draw from the food, petroleum and ethanol industry analysts as well as agricultural experts like former Secretary of Agriculture Clayton Yeutter, will be shared with ethanol industry members from small, farmer-owned production facilities to larger corporate refiners, as well as those in the food industry. "We're going to provide information to members of the food industry that emphasize less the results for ethanol producers, but instead the ripple effect on the food industry.

"The strategies for ethanol producers might be very different for different companies. In a highly optimistic scenario, we might say 'You're all going to be just fine.' In a lower-probability scenario, there may be some tough choices some firms have to face. For some, we may say 'Cash out now and sell to a larger firm,'" Ludwig adds.

The ultimate outcomes, Ludwig says, will be a set of data and analysis for participating ethanol refiners that can help guide their business into the future. "We want to address key issues at a high level and drive home what it means at a practical level," he says.

Ethanol industry returns may be bullish these days, but only time will tell whether the current business structure will yield sustained profitability into the future. A lot can change in the next few years as the industry continues to mature.

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