Glut of ethanol undercuts industry's hopes

September 30, 2007|By New York Times News Service

NEVADA, Iowa -- The ethanol boom of recent years - which spurred a frenzy of distillery construction, record corn prices, rising food prices and hopes of a new future for rural America - may be fading.

Only last year, farmers here spoke of a biofuel gold rush, and they rejoiced as prices for ethanol and the corn used to produce it set records.

But companies and farm cooperatives have built so many distilleries so quickly that the ethanol market is suddenly suffering from a glut, in part because the means to distribute it has not kept pace.

The average national ethanol price on the spot market has plunged 30 percent since May, with the decline escalating sharply in the past few weeks.

While generous government support is expected to keep the output of ethanol fuel growing, the poorly planned overexpansion of the industry raises questions about its ability to fulfill the hopes of President Bush and other policymakers to serve as a serious antidote to the nation's heavy reliance on foreign oil.

And if the bust becomes worse, candidates for president could be put on the spot to pledge even more federal support for the industry, particularly here in Iowa, whose caucus in January is traditionally the first contest in the presidential nominating process.

Many industry experts say the worst problems are temporary and have been intensified by transportation bottlenecks in getting ethanol from the heartland to the coasts, where it is needed most.

And even if some farmers who invested in the plants lose money, most of them are reaping a separate bounty from higher prices for corn and other commodities, which are expected to remain elevated for some time.

Even so, companies are already shelving plans for expansion and canceling new plant construction. If prices fall more, as many analysts predict, there is likely to be a sweeping consolidation of the industry, and some smaller companies could go out of business.

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