Associated Press
06-17-07
A leader in the growing industry expects 'a bumpy ride'
Some fear ethanol boom is threatened by a glut
By STEVE KARNOWSKI
MINNEAPOLIS — In the 2 1/2 years since Gordon Ommen co-founded US
BioEnergy Corp., the company has quietly grown into one of the country's top
ethanol producers, with plans to double in size this year and grow its capacity to
1 billion gallons a year by 2009.
But Ommen knows there are challenges ahead for both his young company and
the rapidly growing ethanol industry. Thanks to that fast expansion and some
distribution issues, some Wall Street and university analysts predict the ethanol
boom is about to stumble on a supply glut and shrinking profit margins.
"It's going to be a little bit of a bumpy ride, I think, but in the long run we are
bullish on renewable fuels and believe that they are going to be a part of our
domestic fuel stream for a long time to come," said Ommen, chairman, president
and CEO of Inver Grove Heights, Minn.-based US BioEnergy.
It's a view shared by Geoff Cooper, who runs ethanol programs for the National
Corn Growers Association. He said the industry expects what he called a
temporary oversupply for several months, though he hesitated to call it a glut.
Lehman Brothers analysts estimated the surplus at about 1 million gallons per
day starting in the second half of 2007. The firm's report attributed part of that to
the ethanol plant construction boom, but said transportation bottlenecks are a
bigger problem.
Ethanol is produced mainly in the Midwest and has to be moved to coastal
markets by train or truck since pipelines don't exist, said Michael Waldron, a coauthor of the report.
"The supply is coming online and there isn't really an efficient way to get it to the
demand centers on the East and West Coasts," he said.
Currently, agribusiness conglomerate Archer Daniels Midland Co., of Decatur,
Ill., is easily the country's largest ethanol producer with annual capacity of 1.1
billion gallons, and has expansion plans that will raise that to 1.6 billion gallons.
US BioEnergy, with 300 million gallons of capacity, was No. 1 among the
companies that primarily produce ethanol until Brookings, S.D.-based VeraSun
Energy Corp. opened a new plant in April that boosted its capacity to 340 million
gallons. VeraSun has plants under construction or in development that will boost
capacity to 670 million gallons. US BioEnergy is building plants to expand its
capacity by as much as 450 million gallons; its goal is 1 billion by 2009.
"We expect the relentless supply of new ethanol production capacity will lead to a
70 percent decline in margins by 2009," wrote Bank of America analyst Eric K.
Brown in a May report. The report, "The Ethanol Floodgates Have Opened,"
downgraded ratings on several ethanol-related stocks.
Researchers at Iowa State University also raised concerns about profit margins
being battered by corn prices that, driven by ethanol, have risen from under $3
per bushel last summer to close to $4 per bushel lately. They say that will make it
difficult for ethanol plants to make money.