Shakeouts seem to be starting in biofuels industries

"Mergers and a bankruptcy last week in the ethanol business reveal an industry that is consolidating," write Bill Bishop and Richard Oswald in the Daily Yonder. "Will there be room for rural communities and local investors to profit from biofuels?" That question may take a while to answer, but it seems likely that the ethanol and biodiesel industries are starting shakeouts in which big producers will swallow up smaller ones, which often have local investors.

"The big news in rural business over the past week, to us at least, was the rapid-fire consolidation in the alternative-fuels business," Bishop and Oswald write. "VeraSun Energy Corp. made a deal late last week to purchase the smaller U.S. BioEnergy Corp. in an all-stock deal that could make the combined companies the largest producer of ethanol in the United States by the end of next year. Archer Daniels Midland Co. produces the most ethanol now and expects to gin out 1.34 billion gallons by the end of next year. The larger VeraSun, however, would be producing over 1.6 billion gallons by the time 2008 finishes. ... The deal is widely seen as the most prominent example of consolidation in what had been a rapidly expanding industry. But recently there has been a glut in ethanol production and per-gallon profits have dropped dramatically."

The Yonder notes that construction has stopped on a locally owned ethanol plant being built in Rock Port, Mo. That could be "a signal of how hard it may be for rural communities and small investors to participate in the prosperity generated by renewable fuels produced from farm raised feed stocks," Bishop and Oswald write.

A shakeout also seems likely in the biodiesel industry, which "is struggling to cope with soaring soybean-oil prices, a glut of production capacity and a poorly developed distribution system," reports Nancy Cole in the Arkansas Democrat Gazette. "The entire biodiesel industry is confronting difficulties, said Jenna Higgins, communications director for the National Biodiesel Board, the industry trade association based in Columbia, Mo." In a long story, Cole reports biodiesel companies shelving construction plans and going into bankruptcy. (Read more)