Published: June 16 2008 03:00 | Last updated: June 16 2008 03:00
Large numbers of small to mid-size ethanol producers could shut down over the coming months after flooding across the US midwest caused irreparable damage to the year's corn crop and pushed corn prices up sharply, says a report by Citigroup.
At least five small to mid-size ethanol plants had shut down in recent days, said David Driscoll, Citigroup's US food manufacturing analyst, in an equity research report.
The widespread flooding, on a scale the region has seen only twice in the last 25 years, had forced down ethanol margins over the past 10 days, leaving small and mid-sized ethanol producers running at substantial losses against cash costs, Mr Driscoll said.
"As a result of the rapid margin deterioration, we believe that many, if not all, of the small to mid-size producers will be forced to shut down over the next few months." This could result in as much as 2bn-5bn gallons of ethanol going off-line in the next few months, he said.
Production for 2007 was only 6.5 billion gallons!
I think this flooding is going to be ethanol's equivalent to the Hindenburg disaster. _________________ Cogito, ergo non satis bibivi
I'm just gonna find a cash machine.
Since ethanol - a mandated ingredient in U.S. gasoline - is produced domestically with corn, rising crop prices could send already-record gasoline prices even higher.
"The floods in the Midwest will have a major impact on ethanol," said Phil Flynn, senior market analyst at Alaron Trading in Chicago.
Gasoline in the United States is comprised of only about 6% to 10% ethanol, as mandated by federal and state governments. But Flynn believes gas prices could jump 10% or 15% if corn were to hit $10 a bushel and crude oil maintains its current high level.
With the national average of gasoline at a record $4.07 a gallon, according to AAA, a 15% increase would translate into an additional 61 cents.
"Crude oil is still the predominant factor why gas prices are high, but don't think that 6% to 10% isn't going to matter," Flynn said.
_________________ Cogito, ergo non satis bibivi
I'm just gonna find a cash machine.
Posted: Mon Jun 16, 2008 11:38 am Post subject: Re: Ethanol output faces sharp cuts
Quote:
"The floods in the Midwest will have a major impact on ethanol," said Phil Flynn, senior market analyst at Alaron Trading in Chicago.
Phil? Worried?
Right now, 103 out of the 210 million barrels of the unleaded we have in inventory is blending components, which must be blended with either ethanol or the even more precious alkylate, in order to be burned as fuel.
If the ethanol runs short, however much of this blending stuff is out of commission.
However, the friendly nation of Brazil, along with others, can probably provide us with a little to import so we can get our supplies moving.
But it is potentially a serious long-term problem. A lot of the infrastructure, tankage, etc. right now is configured anticipating X amount of ethanol, and if that much does not show up, it is a potential issue.
For now, we are working on last year's corn supply, which was harvested in the fall. So there is no compelling problem, other than economic, that will keep the ethanol producers from finding corn to convert. Exception: if the producers are under water, that is a problem.
However, the economics are a serious problem as we all know, and this fall, if the crop is damaged, this will be even more serious.
Posted: Mon Jun 16, 2008 11:39 am Post subject: Re: Ethanol output faces sharp cuts
Good.
The sooner ETOH is dead, the better. _________________ Massive Human Dieoff must occur as a result of Peak Oil. Many more than half will die. It will occur everywhere, including where you live. If you fail to recognize this, then your odds of living move toward the "going to die" group.
Posted: Mon Jun 16, 2008 11:39 am Post subject: Re: Ethanol output faces sharp cuts
This is the best thing that could happen to the major producers like Verasun, Aventine, and Pacific Ethanol. They are all using the latest, most efficient refining systems, and are well capitalized.
The small scale private equity and farm coop operations will not be able to make a cent due to lower yields of ethanol, and higher operational costs.
The result will be that ethanol production will fall short of the projected levels, and might even fall short of the 9 billion gallon mandate. Ethanol prices will remain firm, but not so strong that smaller players can will risk going back into operation. These are the ingredients for solid sustained earnings for big ethanol, especially if gasoline prices remain strong.
All of the dire news and predictions about ethanol assumed that production would be equivalent to refining capacity. Reality has proven to be far from the case. At the end of this summer, only the largest operations will remain. This is a consolidation period where the ethanol "experts" had predicted expansion.
Add to this the collapse of the beef and pork profit margins, currently deep in the red, and you will see corn ending stocks well above predictions. Its easy to draw straight lines on charts, but very little in the commodities markets goes in a straight line. Linear predictions are a 2 dimensional model used to approximate a non linear, cyclical market. They are about as useful as teets on a bull, but they still have their place in short term speculative markets .
Joined: Oct 23, 2004 Posts: 5512 Location: New Jersey
Posted: Mon Jun 16, 2008 4:15 pm Post subject: Re: Ethanol output faces sharp cuts
Quote:
Biofuels Production Slowed by Flooding
Continued flooding could take over 400 million gallons offline.
(6/16/2008)
An estimated 300 million gallons of Iowa's 2.2 billion gallon ethanol production is currently offline due to flood conditions in the state, the Iowa Renewable Fuels Association reported. If predictions of river cresting into early next week prove correct that number could grow to over 400 million gallons. "Even as the rivers receded, based upon the reports we've received, it could likely be some time before production can return to normal levels," IRFA said. Ethanol plant shutdowns have reduced corn demand by more than 300,000 bushels per day.
No ethanol or biodiesel refinery has reported a disruption of feedstock supply that will impact operations. Several livestock processors, who supply animal fats for biodiesel production, have shut down. "While there has been no impact on feedstock supply yet, this situation will be monitored," IRFA said. Operating plants are reporting a significant spike in orders for distillers grains. It is likely that interstate shipping disruptions of feed products combined with some corn processing plant closings in Iowa has increased the Iowa demand for distillers grains.
Given the inherent flexibility of biofuels distribution (rail, truck, barge), no plants have reported an inability to ship fuel to destination markets. However, railroad operations have been greatly impacted by the flooding. Delays are widespread. At least one bridge has collapsed on a rail line that services several ethanol plants. Also, many highways and I-80 have been/will be closed. These are serious challenges and will impact shipping routes and duration. "At this time, however, we do not expect any significant supply disruption to end markets," IRFA stated.
Perhaps the biggest impact on biofuels producers from the floods has been the dramatic escalation in commodity prices, with corn futures surging nearly $1 in the past week, IRFA said. "As under-regulated hedge funds speculatively drive prices upwards, the impact is felt by biofuels producers, livestock farmers, and many other sectors."
Farm Futures _________________ It's already over, now it's just a matter of adjusting.
Joined: Sep 16, 2004 Posts: 4280 Location: Southwest WI
Posted: Mon Jun 16, 2008 5:51 pm Post subject: Re: Ethanol output faces sharp cuts
Now speculators are driving up the price of corn! Give me a break. Were speculators driving up the price of Google shares? If i had money, and i thought i could make more money by investing in X, well...by god, thats what i'm going to do. Do these people want capitalism (or whatever you call this train wreck we have) or communism? _________________ "Oil is going up because we use too much oil, and the capacity to replace reserves is dwindling"
-President Bush 11/07/07
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