Pork Magazine, KS
06-28-07
Excess Ethanol?
By Pork news staff
As is typical with Americans, efforts and activities swing to the extreme. The
livestock industry has been warning that the full-throttle push toward ethanol
production carries a variety of consequences. When will we learn that there is
such a thing as too much of good thing?
Such is the case with the booming ethanol industry say Lehman Brothers
analysts. By late 2007, the U.S. ethanol industry will have a surplus of about 1
million gallons per day. Little surprise is the fact that moving that ethanol around
to areas that can use it is a bigger problem. Imagine, participants, lawmakers and
others didn't think through the full implications before embracing this energy
mandate.
Here's the thing, ethanol is mainly produced in the Midwest...where there's corn.
From there, it has to be shipped to the coasts by train or truck...where there is
more people. Since pipelines don't exist-- and the U.S. railroad has been reduced
to a small and already full capacity-- moving ethanol around is a problem.
In a Lehman Brothers' report, Michael Waldron, a co-author, told Dow Jones.
"The supply is coming online and there isn't an efficient way to get it to the
demand centers on the East and West Coasts."
Waldron isn't alone in his concern. "We expect the relentless supply of new
ethanol production capacity will lead to a 70 percent decline in margins by 2009,"
wrote Eric Brown, Bank of America analyst. The report, "The Ethanol Floodgates
Have Opened," downgraded ratings on several ethanol-related stocks, reports
Meatingplace.com.
Iowa State University researchers also have raised red flags on profit margins
for livestock producers, food companies and any number of corn users due to
ethanol production. The researchers project higher corn prices will make it
increasingly hard for ethanol plants to make money in the future, and that as the
product supply grows, prices will drop relative to gas unless a change in
government policy boosts demand for it. While that could easily happen as
lawmakers have started this ball rolling, it will, however, be widely unpopular with
many business sectors.