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Officials say more Iowa ethanol plants may close

Wednesday, December 24, 2008

DES MOINES - Renewable fuel officials say more ethanol plants in Iowa could close as the industry deals with falling prices.

The drop in price for corn, crude oil and ethanol has resulted in reduced revenues for the ethanol industry this year, prompting three of the state's 32 ethanol plants to file for bankruptcy.

Plants in Albert City, Dyersville and Steamboat Rock have closed in recent months.

Monte Shaw, executive director of the Iowa Renewable Fuels Association, says it's a frustrating time for the ethanol industry.

"We may see a few more plants close while the market finds equilibrium," said Shaw, who acknowledged the industry "probably overbuilt itself."

Shaw dismissed talk that the industry is collapsing and says more ethanol will be produced next year.

"The idea that ethanol is on a death spiral is ridiculous," he said. "More ethanol will be produced next year than this year and we'll need producers to get the job done."

The fall in the price of feedstock corn from $8 a bushl in July to $3.60 this week should have been a boon to ethanol producers. But the price of ethanol experienced a similar fall, from $2.90 a gallon last summer to the current price of about $1.60 a gallon.

The drop coincided with the $100 per barrel plung of crude oil from its midsummer highs for the same reason - declined demand caused by the worldwide economic crunch.

Ethanol profit margins have declined from 31 cents per gallong last summer to just 3 cents per gallon last month.

"We could make money when corn was $8 and ethanol was $2.90 per gallon," Shaw said. "But what happened was that while the plants contracted into forward months for their corn supply, the oil companies won't let them do similar sales into future months. So the plants are having to sell lower-priced ethanol while using more expensive corn."

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