Bad tidings for ethanol

This week’s USDA report could be precursor to another runup in corn prices, spelling bad times for ethanol industry looking to get off the ground.

NEW YORK (CNNMoney.com) — Friday’s closely watched U.S. Department of Agriculture crop report could serve as a gloomy bellwether for the nation’s ethanol industry.

Despite projections of a record harvest, many analysts are expecting corn prices to surge over the next several months as farmers give back this year’s unprecedented corn plantings of about 90 million acres to wheat and soybeans.
Corn is expensive to produce and the relentless demand for it – the primary ingredient in U.S.-made ethanol – caused disruptions this year in normal crop rotations. But analysts said stronger-than-expected soybean and wheat prices will cause farmers to go back to planting those crops instead of replacing some of their acreage with corn, as was the case this year.

Farm Futures Daily this week predicted the USDA report will show a corn yield of 12.64 billion bushels, a record generated by the massive demand from ethanol producers. FFD analyst Arlan Suderman said an additional 77 ethanol plants expected to come on line by 2009 will only drive that demand up.

CNN Money