"The ethanol industry expanded based partly on expectations that gas consumption would keep rising, and that ethanol's share of that would continue to grow," Peters writes. "Instead, gas demand this year is projected to be 6.7 percent below its peak in 2007, and efforts to expand ethanol's share face challenges." U.S. plants now face excess capacity, producing less than 14 billion gallons of ethanol a year, with capacity of 14.7 billion gallons, according to the Renewable Fuels Association, an ethanol trade association.
What does this mean for farmers? Writes Peters: "The slump is weighing on prices American farmers get for corn, which rose to record highs in recent years based partly on ethanol demand. The ethanol industry now consumes about 40 percent of corn produced in the U.S., up from around 14 percent in 2005. The Agriculture Department projects corn prices for this year will decline at least 20 percent to an average of $4.20 to $5 a bushel, partly because of flat demand from ethanol producers."