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USDA report confirms ethanol woes

Agriculture.com Staff 12/15/2008 @ 9:26am

As crude oil prices plunged this fall and corn prices remained too high for ethanol plants to absorb high input cost, profit margins slipped or went into negative territory. With the bankruptcy of Verasun, the second largest producer of ethanol, the market was shaken, and the USDA took notice. On this month's Supply and Demand report, ethanol usage was dropped by 300 million bushels and now rests at 3.7 billion.

Is there more to come? Perhaps. There is some talk that as many as forty ethanol plants could close in the year ahead. Yet, there is wild speculation as to whether or not these plants will close and, if they do, for how long. Will someone with deep pockets come along, possibly an energy conglomerate, buy them cheaply, retool and move full steam ahead? This question is valid and uncertain. The current administration seems to be indicating that they are friendly to ethanol. If in fact they are, with mandates in place, there may be a place for all existing plants to remain productive.

The ethanol industry probably has more negatives to absorb sooner than later. For those plants that do survive, if energy prices rebound, they could be in very good financial shape. Corn yield near 154 bushels per acre suggests there is enough inventory in the year ahead. In addition, expectations for slowing demand and lower energy prices also suggest corn supply could be ample.

In the end, like any industry, the late comers have greater risk. In the case of ethanol, the gold rush mentality of last year came crashing down. It should not have surprised or shocked anyone. Like any industry, ethanol will have its ups and downs and, while it may have ramped up too quickly, if the long term picture for increased alternative fuels remains intact, it will stand on firm footing in a matter of time.

If you have comments or questions, call Top Farmer at 1-800-TOP-FARM ext. 129 and ask for Bryan Doherty.

As crude oil prices plunged this fall and corn prices remained too high for ethanol plants to absorb high input cost, profit margins slipped or went into negative territory. With the bankruptcy of Verasun, the second largest producer of ethanol, the market was shaken, and the USDA took notice. On this month's Supply and Demand report, ethanol usage was dropped by 300 million bushels and now rests at 3.7 billion.

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