Experts Warn of Ethanol Glut

John Davis

Some experts are warning that the rapid growth in ethanol production could outpace this country’s ability to use it, possibly causing a glut of the alternative fuel.

This story in the Los Angeles Times says possible distribution issues won’t help the matter:

“It’s going to be a little bit of a bumpy ride, I think, but in the long run we are bullish on renewable fuels,” said (Gordon) Ommen, chairman, president and chief executive of Inver Grove Heights, Minn.-based US BioEnergy.

It’s a view shared by Geoff Cooper, who runs ethanol programs for the National Corn Growers Assn. He said the industry expected what he called a temporary oversupply for several months, though he hesitated to call it a glut.

In fact, some financial analysts are saying a glut of a million gallons a day could begin in the second half of this year and getting worse after that.

“We expect the relentless supply of new ethanol production capacity will lead to a 70% decline in margins by 2009,” wrote Bank of America analyst Eric K. Brown in a report last month.

Researchers at Iowa State University also raised concerns about falling profit margins as corn prices, driven by ethanol, rose from under $3 a bushel last summer to close to $4 a bushel lately. And as the ethanol supply grows, they predict, ethanol prices will drop.

Officials with the Renewable Fuels Association are downplaying the chances of any glut saying railroads should be able to solve much of the distribution problems.