Ethanol industry may consolidate as credit flows

The latest update of turmoil in the corn ethanol industry comes from Kate Galbraith of The New York Times, who writes, "Several other small producers have filed for bankruptcy this year, and construction plans for several Midwestern ethanol plants have been postponed or shelved. Shares in the handful of publicly owned ethanol companies have mostly been slumping all year." (Photo by Adam Gerik of the Journal Star, Peoria)

The turmoil is caused by a combination of high corn prices, falling fuel costs and tightening loan opportunities. It began when summer floods drove up corn prices. Fearing a continued rise, many companies sought insurance by locking into a set price per bushel. As farms recovered, the cost of corn fell but many ethanol producers were locked into a higher price. Compounding the difficulties are the increased price of natural gas and the falling price of ethanol, which closely followse gasoline prices, and increased difficulty securing loans in the credit crunch.

Ethanol has been looked at favorably by many as a way to lower carbon dioxide emissions from automobiles while helping farmers at the same time. Writes Galbraith, "Many politicians have embraced ethanol as a way to court farmers and because it is produced domestically." This support spurred growth in 2007. Now the industry faces serious challenges. While fewer than 10 percent of country's plants have stopped production, many new projects have been put on the shelf with completion times thrown into doubt. Many see consolidation as the way forward, but that may only be possible after the credit crisis begins to ease. (Read more)