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PROFITABILITY RETURNS TO ETHANOL PLANTS
Oct. 13, 2009
BrownfieldAgNews reports:
"This is Christmas time for ethanol plants."
That's how one market analyst describes the recent period of widening profit margins in the ethanol industry. Rich Feltes of commodity firm MF Global says the recent upturn in the crude oil price, combined with lower corn prices this fall, has ethanol plants pumping out as much ethanol as they can.
"Plants are running over broiler-plate capacity," Feltes says. "This is going to encourage some of the plants that have been moth-balled because of earlier poor profitability in ethanol to be brought back on-line. Right now it's a very encouraging picture for the ethanol industry in the U.S."
But Feltes says while near-term operating margins have improved, the longer-term outlook for ethanol expansion remains cloudy.
"Not only do we have this 15 billion cap in U.S. corn ethanol that's quickly approaching, but we've got California ready to basically take corn-based ethanol off the table in two to three years because of their land use calculations out there," says Feltes. "Of course, the cellulosic ethanol is simply not penciling at all-there is no venture capital for that either."
Feltes says those issues will have to be addressed for ethanol to continue its growth. Otherwise, he says, corn production could outpace ethanol demand in the next three to five years.
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