High corn prices, decline in fuel consumption spell trouble for ethanol plants and their communities

Grain bins at closed ethanol plant in
Macon, Mo. (NYT photo by Daniel Acker)

The ethanol bubble has burst, John Eligon and Matthew Wald report for The New York Times from Macon, Mo.: "Five years ago, rural America was giddy for ethanol. Backed by government subsidies and mandates, hundreds of ethanol plants rose among the golden fields of the Corn Belt, bringing jobs and business to small towns, providing farmers with a new market for their crops and generating billions of dollars in revenue for the producers of this corn-based fuel blend. Those days of promise and prosperity are vanishing.

"Nearly 10 percent of the nation’s ethanol plants have stopped production over the past year, in part because the drought that has ravaged much of the nation’s crops pushed commodity prices so high that ethanol has become too expensive to produce. A dip in gasoline consumption has compounded the industry’s problem by reducing the demand for ethanol. The situation has left the fate of dozens of ethanol plants hanging in the balance and has unsettled communities that once prospered from this biofuel." (Read more)

Because most vehicles are supposed to burn fuel with no more than 10 percent ethanol, and few service stations are set up to sell a 15 percent blend, much ethanol remains in storage. The federal Renewable Fuels Standard requires them to blend a certain amount of ethanol, and because they can't do that, they are buying and driving up the price of ethanol credits, which threatens to raise fuel prices, Wald reports: "The ethanol lobby accuses the oil companies of ratcheting up the demand for fuel credits as a way of applying pressure on lawmakers to reduce the alternative fuel mandates." (Read more)