Record-high corn prices slow ethanol expansion

Record-high corn prices, among other market conditions, have ethanol producers slowing expansion and analysts crunching numbers to find the industry’s break-even point.

On Monday — the eighth consecutive day that corn prices set a record — major ethanol producer VeraSun Energy Corp. said it will delay starting two nearly complete ethanol plants “until ethanol market conditions improve,” spokesman Mike Lockrem said.


… Analysts, meanwhile, have begun calculating price scenarios under which ethanol production might become unprofitable.

“We believe these (corn) prices, if sustained, could pressure weaker producers to reduce or eliminate production,” Oppenheimer & Co. analyst Joseph Gomes Jr. said Monday in a client note.

In a telephone conversation Tuesday, Gomes cautioned that there is no set price for corn that will automatically mean ethanol production is unprofitable.

“There’s a ton of moving parts here that make it difficult to say that at this price ethanol producers start losing money,” he said. “If the price of ethanol doesn’t rise, the price of corn is going to negatively impact a lot of these guys.”

One scenario developed by Gomes finds a nominal ethanol producer’s break-even point at corn selling for $7 per bushel. Beyond that, losses begin.

AP