[bsrsharma]

Ethanol’s Boom Stalling as Glut Depresses Price

NEVADA, Iowa, Sept. 24 — The ethanol boom of recent years — which spurred a frenzy of distillery construction, record corn prices, rising food prices and hopes of a new future for rural America — may be fading.

Only last year, farmers here spoke of a biofuel gold rush, and they rejoiced as prices for ethanol and the corn used to produce it set records.

But companies and farm cooperatives have built so many distilleries so quickly that the ethanol market is suddenly plagued by a glut, in part because the means to distribute it have not kept pace. The average national ethanol price on the spot market has plunged 30 percent since May, with the decline escalating sharply in the last few weeks.

“The end of the ethanol boom is possibly in sight and may already be here,” said Neil E. Harl, an economics professor emeritus at Iowa State University who lectures on ethanol and is a consultant for producers. “This is a dangerous time for people who are making investments.”

While generous government support is expected to keep the output of ethanol fuel growing, the poorly planned overexpansion of the industry raises questions about its ability to fulfill the hopes of President Bush and other policy makers to serve as a serious antidote to the nation’s heavy reliance on foreign oil.

And if the bust becomes worse, candidates for president could be put on the spot to pledge even more federal support for the industry, particularly here in Iowa, whose caucus in January is the first contest in the presidential nominating process.

Many industry experts say the worst problems are temporary and have been intensified by transportation bottlenecks in getting ethanol from the heartland to the coasts, where it is needed most. And even if some farmers who invested in the plants lose money, most of them are reaping a separate bounty from higher prices for corn and other commodities, which are expected to remain elevated for some time.

Even so, companies are already shelving plans for expansion and canceling new plant construction. If prices fall more, as many analysts predict, there is likely to be a sweeping consolidation of the industry, and some smaller companies could go out of business.

The falling price of ethanol comes in sharp contrast to the rise in crude oil prices. Lower ethanol prices help reduce gasoline prices at the pump, where ethanol is available, but because it constitutes 10 percent or less in most blends, the impact for the consumer is marginal.

Congress essentially legislated the industry’s expansion by requiring steadily higher quantities of ethanol as a gasoline blend, a kick-start that was further spurred by the proliferation of bans on a competing fuel additive used to help curb air pollution.

But the ethanol industry, which is also heavily subsidized by federal tax incentives, got far ahead of the requirements of the law, rapidly building scores of plants and snapping up a rising share of the corn harvest. Many of those plants have gone into operation in recent months, and many more are scheduled for completion by the end of next year.

The resulting ethanol oversupply is buffeting the market. Here in northern Iowa, deep in the corn belt, newly cautious farmers and ethanol executives are figuring out how to cut costs and weighing their options should the situation get worse.

“We don’t know what, ultimately, the marketplace will price ethanol at,” said Rick Brehm, president and chief executive of Lincolnway Energy, a midsize distillery here. “It could go lower.”

Since construction crews broke ground on the Lincolnway plant in 2005, the price of ethanol on the local market has fallen to $1.55 a gallon from about $2, Mr. Brehm said. Over the same period, the price of corn, representing 70 percent of production costs, has risen to $3.27 a bushel from $1.60. “We’re trapped between two commodities,” he said.

Lincolnway was once virtually alone in the region, but now a handful of new competing distilleries are operating and pouring even more ethanol onto the market, offering blenders more options to negotiate lower prices and driving up demand for corn……

http://www.nytimes.com/2007/09/30/business/30ethanol.html?ei=5087&em=&en=bd695fcc2bcabe84&ex=1191384000&adxnnl=1&adxnnlx=1191211652-WzVemflomnUdXh4L48EArw

[bsrsharma]

Out of the box thinking:
—————————–
Comment by AKron
2007-09-30 12:48:57

Homes that sold for $350k in 2001 are still $700k+ today.

Stop quoting these in dollars. Homes that sold for 350/30 = 11.7K barrels of petroleum in 2001 are now 700/80 = 8.75K barrels of petroleum.

[bsrsharma]

Is it Section 8?

[bsrsharma]

Credit Unions are insured by NCUA. See http://www.ncua.gov/ShareInsurance/Index.htm

[bsrsharma]

Correct me if I am wrong – the termite business seems like a gravy train (looking at their prices). Hard to shed more than a few tears.

[bsrsharma]

openly talk about staying with their husband only for financial reasons.

Hmm, doesn't that "profession" have a name? I thought so.

[bsrsharma]

If you have reasonable confidence in getting jobs, Huntsville seems a better bet.

[bsrsharma]

greensd – since the perspectives are sometimes asymmetrical, are you the husband or wife in the divorce?

[bsrsharma]

eat too much

That is inconsequential. Our major deficits are;

1. Public debt (federal government)

2. High private debt for housing

3. Oil & Gas imports

4. Auto imports

5. Large corporate debts. Hidden corporate debts due to rising health care costs and commercial real estate costs.

6. Consumer Electronics etc.,

Food & clothing are relatively minor.

[bsrsharma]

TG: That is an interesting theory! How big is your straw poll?

After 9/11, I heard this phrase “… she decided against pressing for divorce after these events …” many times. See http://www.nocourtdivorce.com/news_text.phtml?pressID=27

[bsrsharma]

another war

I think you can sleep well on that issue. If there is as much as a rumbling of another war, my guess is, you will see treasuries drop like a rock and the term "Full faith & credit" severely challenged. It may seem weird – but the threat of Bankruptcy is a powerful antiwar protest!

[bsrsharma]

year 2011

Actually, that is a bad year! That is when baby boomers start suckling into Social Security & Medicare. By then, they will also be liquidating 401(k)s for living expenses, there will be strain on the few surviving pension funds, the indigent baby boomers will be taxing SSI/Medicaid/Medical. Many will be downsizing by selling their larger family homes for smaller retirement homes. In other words, that is when all hell breaks loose!

Compared to that, subprime seems to me like horse de vours before a banquet

 

[bsrsharma]

We are overtaxed and Overmaxed.

Actually, if we were overtaxed (for what we are spending), we would have realized the costs for our actions and things wouldn't be this bad. It is the over borrowing that gave us a false sense of affluence – causing all misdeeds. Now that the rest of the world has found out we are junkies, we have to suffer the cold turkey syndrome.

[bsrsharma]

OOps..The above from OC

No need for oops; this will be the National pattern for at least two more quarters.

[bsrsharma]

Another list of cities with a positive outlook:

http://money.cnn.com/galleries/2007/biz2/0709/gallery.boom_towns.biz2/index.html

[Author]

Posts