Bad ethanol economics

Industry capacity hits a new high, even as a dozen companies file for bankruptcy.

Published June 27, 2008 8:08PM (EDT)

Two news items from Reuters:

If ever we needed a real-life definition of the term "Catch-22," here it is: Federal ethanol mandates have contributed to record corn prices, which in turn make it almost impossible to turn a profit selling ethanol.

Or at least, that's how most people see the problem. But not the Renewable Fuels Association.

MarketWatch reports:

"Getting rid of the U.S. ethanol industry will have little impact on the price of corn," said Matt Hartwig, a spokesman at Renewable Fuels Association, the trade group for U.S. ethanol producers.

Oh really?

From the same MarketWatch article:

The USDA projects corn use for ethanol will reach 4 billion bushels in 2009, almost doubling the 2007 level and accounting for 34 percent of corn production. In comparison, U.S. corn production is projected to rise only 11 percent in the same period.

So demand will double, but supply will rise only 11 percent. But not to worry -- there will be "little impact" on the price.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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