Corn Prices Hurt Ethanol Producers, Too

High prices have cut into some producers' profits.

Published on: May 14, 2007

As ethanol production's demand for corn has driven corn prices upward, those same ethanol producers have begun to feel the effects of the climb in prices.

Archer Daniels Midland, the largest U.S. ethanol producer, cited high corn prices when it reported quarterly earnings that fell short of expectations. VeraSun Energy Corp. paid more than $4 a bushel for corn - more than twice what it paid the previous year - and saw a loss in the first quarter of 2007. And Aventine Renewable Energy Holdings spent an average of $3.58 per bushel in the same quarter, 69% more than a year before.

However, analysts say most ethanol plants would not face losses unless corn prices were much higher. For that to happen, Ag Resource Co. president Dan Basse tells the Associated Press that, based on current costs and an ethanol price of $2.20 a gallon, corn would have to reach $4.80 a bushel.

Meanwhile, an April 27 Lehman Brothers report has ethanol demand lagging behind supply in the second half of 2007, with a projected supply of 445,000 barrels a day but a demand of 420,000 barrels. The report partly blames the lack of infrastructure for transporting ethanol to the pump in the U.S.