Ethanol glut concerns producers

By Susan Larson | The Daily Journal

Published Monday, October 8, 2007

A glut of ethanol and rising corn prices are cause for concern for ethanol plants just coming on-line in the Midwest. With its own facility slated to be up and running in March, Otter Tail Ag is no different.

“We’ve seen ethanol drop approximately 50 cents a gallon and corn prices climbed up at least 50 cents a bushel” meaning negative profit margins at today’s value, Otter tail Ag CEO Kelly Longtin said.

Established plants, according to the Minnesota Commissioner of Agriculture’s office, won’t have any trouble weathering the downturn, because in many cases they are paid for. But it could be tough to find funding for new plants.

“Plants the size of (the one going up in Fergus Falls) are opening an average of one a week nationwide in the next four months, as of September,” Longtin said, resulting in a blending wall, where the number of gallons of ethanol in the Midwest outnumbers the supply of blending plants.

“Big oil makes a lot of money off the ethanol industry. The people who blend E85, E10 (big oil companies) get 51 cents a gallon to blend ethanol and there is a 50-cent price difference between gas and ethanol, so at the end of the day, ethanol is $1 cheaper than gasoline.”

OTAE has already sold some ethanol, and some of the corn purchased was bought earlier at better numbers, Longtin said. Also, commodity prices change at the drop of hat, meaning things can change for the better.