Ethanol Is Tanking

An interesting thing is happening in the economically dislocated ethanol industry.  Ethanol prices are not falling as fast as gasoline prices so now ethanol is more expensive at the terminal, where it is blended, than gasoline.  Last spring ethanol was about one dollar / gallon cheaper than gasoline, making it very attractive for blending.  It saved the oil companies money, which they pocketed, and reduced your mileage.  But now ethanol is more expensive than gasoline and the difference is growing.  There are actually mandatory E10 states that have provisions in their laws that allow terminals to stop blending if ethanol becomes more expensive than gasoline.  (12/07/2008 update: Missouri, one of the six mandatory E10 states, has suspended mandatory ethanol blending because ethanol has been more expensive than gasoline for weeks.) To watch the price of ethanol move in comparison to gasoline, read this report each week.  The report also outlines the profit potential of a hypothetical ethanol plant model.  Profit potential is in steady decline.

The other disturbing development is that big ethanol producers are seeking bankruptcy protection.  The second largest ethanol producer in the country, VeraSun, declared bankruptcy on Nov. 1, 2008.  Seems their corn futures hedges bit them in the ass, along with the credit crunch.  You can read about VeraSun here.