Floods Could Force Three-Quarters of US Ethanol Plants To Shut Down
by Stacy Feldman - Jun 23rd, 2008
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The US corn ethanol industry is struggling, now that Midwest floods have washed out millions of acres of prime cropland, sending corn prices soaring and ethanol profits falling. If this statement by Citigroup is anything to go by, then it could be even worse than feared.
As a result of the rapid margin deterioration, nearly 120 small to midsize ethanol producers "will be shut down over the next few months," said David Driscoll, an analyst at Citigroup, in a written comment released Thursday. There are currently about 160 ethanol plants in the United States, according to the Renewable Fuels Association.
The USDA had estimated that ethanol production would consume 3 billion bushels of corn this year, or about 30% of total corn consumption in the US.
That's an obscene amount of corn-based motor fuel. And it's due to a US federal mandate signed into law in December that requires the production of nine billion gallons of biofuels this year -- nearly all of that from corn.
The New York Times reports that the EPA has the authority to ease that mandate in times of disaster. It seems an apt time to exercise that right, given how unprofitable ethanol has become for farmers and the probability of a massive shutdown in plants.
On top of that, there's now a worrisome shortfall in animal feed. Freeing up corn promised to ethanol producers would help alleviate that shortage.
Instead, a controversial proposal to plant crops on millions of acres of conservation land is what's likely to pass Congress.
That may come across as a solution to the problem, but it's actually a dubious plan designed to distract from the real challenge: US clean energy independence and food security, respectively.
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