Cargill Pauses Plans For Ethanol Plant

Corn-based ethanol has lost some of its luster. From NPR's Marketplace.

Cargill is suspending construction of a $200 million ethanol plant outside Topeka, Kan. The agribusiness giant says market conditions for ethanol are deteriorating. Jeremy Hobson reports.

KAI RYSSDAL: Corn closed down a couple of cents today, a bit more than $5.25 a bushel at the Chicago Board of Trade. Still, that's double the price of a couple of years ago. It's part of the reason food prices are going up. It's also part of the reason why Cargill has announced it's scrapping plans for a $200 million ethanol plant outside Topeka, Kan. The agribusiness giant says market conditions for ethanol are deteriorating. Reading between the lines here, what they really mean is that corn's gotten too expensive to make any money on, and if you want to make ethanol in the U.S., you've got to have corn.

Jeremy Hobson has the story.

JEREMY HOBSON: Cargill spokesman Bill Brady says it's pretty obvious why the company is suspending the Topeka plant.

BILL BRADY: "The cost of corn is high. The cost of infrastructure to build ethanol plants is much higher than it was, and the price that you can get for a gallon of ethanol is not enough. The numbers don't crunch, basically."

When I asked him whether suspensions were on the way for three other planned Cargill plants, he said this.

BRADY: "The other locations, there have been no decision yet."

HOBSON: "But it's possible that those also may be suspended?"

BRADY: "Well, I mean it's, the economic environment that we're talking about is industry-wide."

It sure is, says John Skelley, who operates an ethanol plant in Arizona.

JOHN SKELLEY: "It's a more mature industry now and you're going to see more mature type of return on investments that are certainly not going to be as crazy as they were a couple years ago."

He says 50 or 100 percent returns have turned into a more realistic 15 percent, but Duke Energy Professor Richard Newell says don't expect a wave of plant closures. Remember last year's energy bill, with its mandates for ethanol production in the years to come.

RICHARD NEWELL: "There is a law in place that basically says that a certain portion of our fuel must come from these types of renewable fuels. That's going to mean that there's going to need to be more ethanol."

He says companies are going to have to build new plants to meet that demand, even if they're not as profitable as they once were.

KAI RYSSDAL: "Cargill, we should tell you, is an underwriter of this program."

Emphasis mine. Thanks to Tammy for the link.

What's surprising is that this comes with already existing ethanol subsidies. Apparently, they're not enough for some companies to continue down the road. What does this mean for food prices, which have already been on the rise? Nothing. Unless demand for ethanol subsides, which isn't bloody likely considering the Energy Independence and Security Act of 2007 requires ethanol production to hit 36 billion gallons by 2022 (from 4.7 billion gallons in 2007), don't expect food prices to improve. To be fair, 21 billion gallons of the 2022 total must be derived from non-cornstarch products (i.e. sugar, cellulose). But that's still room for 15 billion gallons on corn-based ethanol, more than triple what's in use today.

Of course, laws can be repealed.

Watthead has a good list of ethanol articles.

Cargill's website.
"Why are wheat prices rising?" from the BBC.

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