Think an ethanol-fueled car is an eco-friendly and economic alternative to your existing gas guzzler? Not so. A recent report by Fortune magazine proves that investors who jumped on the ethanol bandwagon are already taking it in the cornhole. Construction on ethanol plants has halted as quickly as the alterna-fuel trend took hold. Here’s the word from Fortune:
Cargill announces it’s scrapping plans for a $200 million ethanol plant near Topeka, Kan. A judge approves the bankruptcy sale of an unfinished ethanol plant in Canton, Ill.. And that was just Tuesday. Indeed, plans for as many as 50 new ethanol plants have been shelved in recent months, as Wall Street pulls back from the sector.
Why, when ethanol was looking so profitable, is it suddenly a bust? Because corn prices have shot higher than a silo.
Spurred by an ethanol plant construction binge, corn prices have gone stratospheric, soaring from below $2 a bushel in 2006 to over $5.25 a bushel today. As a result, it’s become difficult for ethanol plants to make a healthy profit, even with oil at $100 a barrel.
The one corporation that looks to be surviving this price jump is Archer Daniels Midland (ADM), who many credit with creating the ethanol craze. Fortune implies that the 2007 Energy Act protects ADM, while smaller companies struggle.
[T]he industry’s new, lower profit margins clearly favor ethanol leader Archer Daniels Midland (ADM, Fortune 500) over all the smaller producers like Verasun, privately-held Poet Energy and the many, many farmer-owned ethanol cooperatives. ADM’s massive 200 million-gallon-a-year ethanol plants simply have better economies of scale than their 50-million-gallon-a-year rivals. And the fact some of ADM’s big plants run on coal instead of natural gas makes ADM’s cost advantage that much greater.
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