May 15, 2007

Ethanol producers affected by soaring corn prices

Skyrocketing prices of corn due to ethanol demand are also hurting producers of the biofuel.

US' largest ethanol producer Archer Daniels Midland said high corn prices were one of the factors on the decline of its quarterly earnings. VeraSun Energy Corporation paid US$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 US$3.58 per bushel in the same quarter, 69 percent more than a year before.

But analysts say ethanol plants would not face losses if the current level prices of corn would be higher. For that to happen, Ag Resource Co president Dan Basse said based on current costs and an ethanol price of US$2.20 a gallon, corn would have to reach US$4.80 a bushel.

Meanwhile, Lehman Brothers has reported 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 US.