Ethanol Industry Faces High Corn Prices

OMAHA (DTN) -- Though the U.S. ethanol industry received a one-year extension of the volumetric ethanol excise tax credit in late December, pressure from rising corn prices at the start of 2011 is expected to test ethanol producers' ability to manage risk.

Early indications are that some producers will start the year with relatively thin profit margins. Yet, some experts say the industry would be profitable without the 45-cent-per-gallon VEETC, because ethanol prices remain relatively high and a growing export market has staved off pressure of an approaching blend wall where production will exceed the size of the E10 market.

A Dec. 16, 2010, Rabobank report said pressure on corn prices is possible at least early in 2011.

Economics continue to support discretionary ethanol blending even if ethanol prices rise above $2.70 a gallon. Rabobank said ethanol would remain profitable with corn prices above $7 a bushel.

"The significance of the current situation highlights how important a swing factor ethanol demand has become for the U.S. corn balance sheet," the report said. "If discretionary blending continues to be supported by tax credits, we see an increased risk that demand comes in at the high end of our forecast, 5.1 billion bushels, pushing stocks-to-use below 4 percent.

source: kfgo