Devastated US corn crop sends ethanol producer...

Original blog post published here (see addendum).

"Devastated US corn crop sends ethanol producer shares into freefall." The Associated Press reported the following financial news:

The values of ethanol producers hemorrhaged Thursday as the price of their key feedstock, corn, climbed to record levels because U.S. floods have devasted this year's crop.
"In the last 10 days the world has changed in the corn market with massive flooding causing irreparable damage to this year's crop and pushing corn prices up $1 over this time frame," Citi Investment Research analyst David C. Driscoll wrote in a client note.
"As a result of this unprecedented weather event which has happened only twice in the last 25 years, ethanol margins have plummeted over the same ten day time span with small and mid size ethanol producers now running at substantial losses against cash costs."
He expects such small and mid-sized producers to halt operations.

Unfortunately, these financial and farming problems will increase food prices in the near term, but they may help lower food prices in future growing seasons, as long as the corn ethanol producers stay shut down. Repeal of the tax credits for corn ethanol would help keep corn ethanol from once again driving food prices up.

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Comments: 9

Rhonda O. Jun 12, 2008, 5:46pm EDT

Good article, James. I believe I heard that they would try switching to soybeans to gain something from the season. So much devastation. So much impact I bet we can't completely predict.

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Sam Carana Jun 12, 2008, 9:58pm EDT

Good article, James, thanks for sharing.

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James C. Jun 12, 2008, 10:39pm EDT

You're absolutely correct but I doubt that the subsidies will cease because of political expediency, especially in an election year.

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Amy H. Jun 13, 2008, 12:31am EDT

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Ed B. Jun 13, 2008, 12:18pm EDT

Bush has already committed himself to supporting corn ethanol, he has never shown the ability/inclination to reconsider bad decisions. At least there should be a change by the next farm bill, we still need to get enough pressure on the polititians so the change is in the wind before the farmers have to commit to next year's planting.

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James B. Jun 13, 2008, 12:50pm EDT

Thanks all! James and Ed, you are certainly right about the Federal subsidies. Even after the election, I don't think it is a sure thing that the Federal corn ethanol subsidies will stop (lots of congressmen and women from the corn producing states may hang onto these subsidies for dear life- Democrats and Republicans).

There are also substantial State subsidies in some states, like mine, where a number of State Legislators have made fortunes because they themselves own large farms and/or ethanol plants, just like a close relative of the (outgoing) Governor. Things might change faster in States because most States are broke and the patience of the people is thin as we struggle through the non-recession and severe economic downturn, but the subsidies are pretty entrenched in States as as well.

So, I think that some activism will be required to help politicians make some sensible decisions for the country on this subject.

Rhonda, I hope that switching to soybeans works for farmers to salvage the growing season. I just hope the soybeans are used for food and not fuel (unless waste biomass is used for fuel).

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