Ethanol prices down, but might go up soon

According to an article by Bloomberg, ethanol prices will stop descending; they have been going low since 2001. Ethanol is actually a 43 percent cheaper than one year ago and is currently cheaper than gasoline (2.20 USD/gallon). Predictions say that this difference will still be held throughout 2007.
However, the ethanol companies aren't losing money, on the contrary: ADM (the largest US ethanol producer) earnings forecast is about 46 percent for this year. On the other hand, oil companies such as Exxon Mobil and Chevron will have less profit. The reason for this? The increase of ethanol production in both China and the US and corn prices (the source for US ethanol) have lowered a 27 percent. It's estimated that for each dollar a bushel of corn goes down, the gallon of ethanol costs 25 cents less.

Ethanol producers aren't sad for the low prices. "Lower ethanol prices are good for us," affirms Anthony Flagg, chief executive officer of First United Ethanol LLC, which is owned by 800 farmers and local investors. "We need a market price that enables our customers to make money." However, they also recognise that they still official support to make ethanol producing a profitable activity.

Nevertheless, government support for this fuel will surely have an impact on demand, as well as California policies of doubling the amount of ethanol blended with gasoline. Current US ethanol capacity figures are 4.9 billion gallons for 2006 (4 percent of US gasoline supply) but producers plan to add 6 additional billions by the end of next year. But plans don't stay still, the US Senate approved an even more ambitious plan that would demand refiners use 36 billion gallons annually of ethanol and other crop-based fuels by 2022. That's twice the amount currently produced worldwide.

[Source: Bloomberg]

More Information