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High Corn Prices Hurting Ethanol Industry

July 11, 2012, 9:55 PM by Perry Groten

High Corn Prices Hurting Ethanol Industry

South Dakota ethanol plants are feeling the pinch of rising corn prices caused by a dry growing season.  But the ethanol industry is placing as much blame on Wall Street speculators as the weather itself.

Corn is ethanol's vital ingredient, so any jump in price is felt at the plant.

"And what we've seen this year is that corn price increases have sort of outpaced ethanol price increases and so that has put a squeeze on the producer," American Coalition for Ethanol Executive Vice-President Brian Jennings said.

Each ethanol plant feels the effect of higher corn prices differently.

"I think what really is going to make the difference for plants is what sort of financial position are they in going into this tough spell," Jennings said.

Some plants may have to cut back on production, others may have to temporarily shut down.

"And it's a step they would rather not take and so I think it will be a last resort and these plants and their boards of directors and their management are going to do whatever they can to avoid that," Jennings said.

Jennings says it's far too early in the summer to write off the corn crop yet.  He says speculators are taking advantage of the dry season by artificially bidding-up the price.

"Folks sitting in high-rise buildings in New York and Chicago are watching all the press attention on the drought.  They don't grow a bushel of corn.  They don't make a gallon of ethanol, but they're looking at this as a financial opportunity for them to take advantage of the market," Jennings said.

With 330 million bushels of South Dakota corn going into the ethanol production every year, both farmers and ethanol plants have a lot riding on parched fields this summer.

The Sioux Falls-based ethanol company POET says one way the industry can protect itself from rising corn prices is by diversifying its product line to include corn byproducts and wood waste.

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