Ethanol's future grim as producers go bust

[Ah Xoc Kin]

Nov 03 2008
VeraSun Energy Corp. and U.S. ethanol makers backed by Bill Gates and Vinod Khosla are failing after wrong-way bets on corn prices overwhelmed $20 billion in federal aid and government-guaranteed demand for the fuel additive.

VeraSun, the second-largest U.S. ethanol producer, was the latest in a string of distillers stung by imploding hedges when the Brookings, South Dakota-based company filed for Chapter 11 bankruptcy protection on Oct. 31. Biofuel Energy Corp., whose biggest owners are hedge funds run by David Einhorn and Daniel Loeb, and at least six other distillers have shut down or curtailed operations because of volatile corn prices and narrowing ethanol margins.

Other ethanol makers hurt by volatile grain prices, narrowing production margins and the glut of U.S. supply include Gateway Ethanol LLC, Heartland Ethanol LLC, LiquidMaize LLC, Greater Ohio Ethanol, Glacial Lakes Corn Processors and Abengoa SA.

Ethanol futures traded in Chicago fell 26 percent this year, touching a 13-month low of $1.66 a gallon on Oct. 22. The average margin earned from distilling a gallon of ethanol tumbled 68 percent to 41 cents this year from $1.24 in 2006.

In addition to the wrong-way bets on corn prices, VeraSun invested in new mills and acquisitions to increase output when a surfeit of U.S. supply was already driving ethanol prices lower. VeraSun owns 16 plants in eight states that can produce 1.64 billion gallons of ethanol a year, or about 15 percent of the domestic supply.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aSiD2NN4Vz7s&refer=home

[frogcycle]

1. corn-based ethanol never made sense

it takes almost as much energy to produce it as it yields. subsidizing it is just another raid on the taxpayers by big business.


AND, it has deferred legitimate research into cellulosic ethanol from sugarcane, switchgrass, various byproducts that will likely, if r&d is ever decently funded, actually be a viable energy source.

IF the existing corn-ethanol plants can be retrofitted to include pre-digesters for the cellulosic sources, then they will re-emerge as good investments.