At the end of February, I blogged on a Fortune article that had the subhead “The ethanol boom is running out of gas as corn prices spike.” That article noted:
Spurred by an ethanol plant construction binge, corn prices have gone stratospheric, soaring from below $2 a bushel in 2006 to over $5.25 a bushel today. As a result, it’s become difficult for ethanol plants to make a healthy profit, even with oil at $100 a barrel.
Just six weeks later, we have an AP article with the subhead “Corn Prices Jump to Record $6 a Bushel, Driving Up Costs for Food, Alternative Energy.”
And it gets better worse:
Worldwide demand for corn to feed livestock and to make biofuel is putting enormous pressure on global supply. And with the U.S. expected to plant less corn, the supply shortage will only worsen. The U.S. Department of Agriculture projected that farmers will plant 86 million acres of corn in 2008, an 8 percent drop from last year …
Another loser in higher corn costs is ethanol producers, who are struggling to squeeze out gains as corn’s record-setting run outpaces the price of ethanol, currently at around $2.50 a gallon.
“For years, corn was cheap and fermentation processes for ethanol production came to completely dominate the biofuel industry in North America,” Michael Jackson, president and chairman of Vancouver-based ethanol maker Syntec Biofuel, said this week. “Now, with corn prices well over $5 a bushel, corn ethanol economics have gone out the window.”
And the worst is yet to come:
The nation’s 147 ethanol plants now have the capacity to produce 8.5 billion gallons of fuel a year, according to the Renewable Fuels Association. Corn is the basic feedstock for most of the plants and about 20 percent of last year’s 13 billion bushel corn crop was consumed by ethanol production. That percentage is expected to increase to 30 percent for the next crop year, which ends Aug. 31, 2009, according to Terry Francl, a senior economist for the American Farm Bureau Federation.
There are still plans to build or expand another 61 plants, which will add about 5.1 billion gallons of capacity. However, as corn prices have climbed over the past year or so, construction of several plants has been halted or delayed, shaving about 500 million gallons worth of capacity off the original figure, according to Broadpoint Capital analyst Ron Oster.
The 2007 Energy Bill mandate is actually for 15 billion gallons of corn ethanol by the middle of the next decade. Hard to see how corn prices will be coming down any time soon.
This post was created for ClimateProgress.org, a project of the Center for American Progress Action Fund.
