High Corn Prices Cast Shadow Over Ethanol Plants

by Robert Siegel

 

AltraBiofuel CEO Ken DeCubellis says the company must watch its costs very carefully. "We are one bad day of ethanol pricing from having to decide to shut the plant down," he says of the company's Indiana facility.

 

 

Profit margins for ethanol producers over the past year have been slim, and sometimes the companies have gone into the red. The spike in corn prices in June reflects the flooding that occurred in the Midwest. Courtesy of Purdue University.

 

 

AltraBiofuels opened its $170 million ethanol plant in Cloverdale, Ind., in April.

 

All Things Considered, July 15, 2008 · A rush to cash in on ethanol has slowed as soaring corn prices squeeze profit margins for producers of the alternative fuel. At a recent high of $7 per bushel, the corn used to make ethanol has tripled in price since many plants were built two years ago, and some facilities have been shut down or put on hold.

Ethanol took off in 2006, in response to two federal policies.

One policy was longstanding: Most gasoline had to include an additive that would oxygenate it, make it burn cleaner and reduce air pollution. The other policy was new: The government decided not to shield the oil companies against lawsuits over the additive that they had been using — methyl tertiary-butyl ether, or MTBE, which was found to contaminate groundwater.

So there had to be a different additive. Ethanol, a type of alcohol that is distilled from corn, fit the bill. And the oil companies could get a 51-cent-per-gallon tax credit for using ethanol.

The rush was on, and producers moved quickly to get ethanol plants online.

But recent ethanol news from the Corn Belt has been a lot less upbeat, as many ethanol-plant projects have stalled.

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