February 27, 2008

 

Cargill suspends US$200 million ethanol plant development, cites market conditions  

 

 

Agribusiness giant Cargill Inc. has suspended development of a US$200 million ethanol plant near Topeka, Kan., amid soaring corn prices, according to a newspaper report published Tuesday (February 26, 2008).

 

"The economics are not at a point where we see fit to move forward," Cargill spokesman Bill Brady told The Topeka Capital-Journal. "The economics are not where they were a year and a half ago."

 

When asked how long the suspension could last, Brady said, "Unless market conditions turn around, we have to remain suspended," according to the report.

 

Brady declined to describe the factors contributing to poor market conditions, but an economist told the newspaper that escalating grain prices were making it difficult for ethanol plants to make a profit. Corn, used to make ethanol, is at a record-high price, and the cost to build an ethanol plant has doubled in the past five years, the report said.

 

CBOT May corn futures Monday set an all-time high for a nearby corn contract at US$5.55 per bushel. The historic price rise eclipsed the previous high of US$5.54 1/2 set July 12, 1996.

 

Jay O'Neil, senior agricultural economist with the International Grains Program at Kansas State University, said US$5 per bushel corn is putting a squeeze on ethanol plant profit margins, according to the newspaper report. If the high corn prices continue, he said, margins will be negative.

 

"The ethanol industry has fallen on more competitive and difficult times," O'Neil said in the report. "They are going to struggle. You will see a consolidation in this process. Some will go out of business."

 

The project was started a year ago by Emerald Renewable Energy, a subsidiary of Cargill.

 

The plant would produce 100 million gallons of ethanol per year on a 300-acre site. 

 

The Topeka site was one of four ethanol plants proposed for construction by Emerald, the report said. Brady said no decision had been made regarding the other three plants proposed in states outside Kansas, according to the report.