March 21, 2006

 

Overwhelming demand for ethanol may strain corn supplies

 

 

After a spurt of good fortune, the US ethanol industry is anticipating some growing pains this summer as motorists rev up demand for fuels. 

 

This would mean that the fledging ethanol industry, mostly concentrated in corn growing regions in the Midwest, would come under increasing pressure to fulfill supplies. Many of these were completed in the past 1 or 2 years due to the need for alternative fuels. 33 plants are still under construction. Most of these plants derive their raw materials from the corn fields nearby where traditionally corn is used for animal feed, causing farmers to worry that increased use of corn for ethanol could mean decreased amounts for use in animal feed.

 

Ethanol makes up one-tenth of every gallon of unleaded gasoline with which it is blended. Higher demand of corn for ethanol would drive corn prices up, which may force farmers to look for alternative ingredients for their animal feed.

 

Ethanol came into the limelight last July when the US Congress passed an energy bill that mandates the doubling of biofuels output by 2012. With imminent legislation to reduce emissions, more US motorists will depend on the corn-derived fuel than ever before.

 

But there's trouble looming: The ethanol industry might not be ready to satisfy the expected summertime jump in demand.

 

With tightened supplies, gasoline prices could shoot up right at the start of the country's peak driving season.

 

That, at least, is the view of the Energy Department, which issued a report last month detailing the challenges midwestern ethanol producers will have in getting their fuel to key markets along the East Coast.

 

The Renewable Fuels Association, a trade group representing ethanol producers such as Archer Daniels Midland Co. (ADM) and Pacific Ethanol Inc. (PEIX), says the industry's challenges and their influence on gasoline prices are being overblown.

 

Wholesale prices for ethanol, meanwhile, have surged to roughly US$2.75 a gallon, or about 50 cents per gallon higher than usual.