December 24, 2007

Ethanol production facing an uncertain future

The road ahead for corn-based ethanol, a wildly booming market just a year ago, now faces many obstacles.

New ethanol plants are facing growing concerns over stressed water supplies and food price increases.

Meanwhile, new ethanol plants have kept coming on line, even though the limited market for the fuel became saturated in 2007.

Ethanol's price has collapsed, while the price of corn soared.

Companies that produce ethanol are consolidating to meet a future uncertain as to the fuel's pricing, rising criticism over the government's ethanol-production mandates and the possibility of imported ethanol entering the US.

The stock of VeraSun Energy Corp., one of the nation's largest ethanol refiners, is down sharply this year.

Still, it is acquiring rival producer US BioEnergy Corp. in a US$700 million deal that could make it the largest US producer of ethanol. The combined entity is expected to produce 1.64 billion gallons of ethanol next year, eclipsing the current top producer ADM, which expects 1.34 billion gallons. 

However, Archer Daniels Midland Co (ADM) says it will be considering acquisitions.

While the stock of VeraSun is struggling, the stock of ADM has soared in 2007, thanks to strong results from its oilseeds processing and agricultural services, which made up for the decline in ethanol profitability.