A University of Nebraska economist warns of the perils the ethanol industry faces if Congress does not approve new mandates for use.
The Sioux City (IA) Journal says a new report, titled “Understanding Ethanol Plant Economics: Will Boom Go Bust?”, says ethanol plants will see their profits disappear over the next four years unless the new mandates prop up demand. In the report, the author projected the financial future of a hypothetical 40-million-gallon-per-year ethanol plant that sees its profits shrink by 2010:
“If this does come to fruition, there is going to be some winnowing of the ethanol industry. Some plants are going to go out of business,” said the report’s author, David Peters. He teaches in the university’s agricultural economics department.
He said the reason for the winnowing is simple: supply and demand. The supply of ethanol from new refineries is growing faster than the demand for the corn-based fuel. Also, the high number of ethanol plants is pushing up the price of corn, which is good for farmers but eats into refineries’ profits.
The solution to the impending problem seems to be obvious: approve a new ethanol mandate. One is pending before Congress right now.