Des Moines Register
11-14-06
Ethanol industry growth to slow, ISU experts say
Prices are predicted to remain profitable, despite higher costs and construction
delays.
By JERRY PERKINS
REGISTER FARM EDITOR
Ames, Ia. - Look for a slowdown in the rapid expansion of the ethanol industry,
Iowa State University economists cautioned Monday.
Increased costs and delays in ethanol plant construction, transportation
bottlenecks in moving ethanol to market, and rapidly rising corn prices all signal
that the expansion of the ethanol industry might be cooling, the ISU economists
said in a webcast that originated from the ISU campus.
John Miranowski, an ISU economics professor, said that ethanol output has
tripled since 2000 and that the industry should continue to make money.
The price of crude oil - and the resulting price of gasoline - is expected to remain
at levels that make ethanol production profitable, he said.
Tax credits and other subsidies for ethanol are expected to continue to be
offered, Miranowski said, and clean air regulations and requirements boosting
the use of ethanol also should be on the table in the future. But, he said, rapid
expansion in ethanol plant construction has led to higher costs. Transportation
backups are affecting the shipment of ethanol to the major East and West Coast
markets.
Paul Gallagher, associate professor of economics, said higher corn prices,
increases in processing costs and higher costs for plant equipment all will slow
the rate of expansion in the industry. Higher corn prices this year and next will
increase the cost of producing ethanol by 30 cents a gallon, Gallagher said. Corn
prices represent 60 percent of the cost of production.
Amani Elobeid, associate scientist at the Center for Agriculture and Rural
Development at Iowa State, said a study she and others recently conducted
showed that if unleaded gasoline costs $2.07 a gallon, the price of corn would
have to hit $4.05 a bushel before the ethanol industry becomes unprofitable and
investment dries up.
Farm Editor Jerry Perkins can be reached at (515) 284-8456 or
jperkins@dmreg.com