Less demand for ethanol knocking down corn prices

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Steve Ruh likes what he has seen in his fields this fall. But the Sugar Grove farmer said he can't say the same for what he has seen when he has taken his crops to market.

"The harvest this year is going to be above average, certainly," Ruh said. "So from that perspective, it's going to be a very good year.

"But what's happening to prices, that's not going to be so good."

For almost two years, ethanol has fueled more than just cars.

Demand for the biofuel that is blended into every gallon of gasoline sold in the U.S. has also been a leading driver behind a rapid rise in the price of corn, in turn helping corn growers in Kane County and throughout the country earn more for their labor.

But in more recent months, demand for ethanol, as well as for all other forms of energy – crude oil, gasoline and natural gas – has sagged, causing energy prices to rapidly decline.

And that, in turn, has left many farmers and agricultural services companies a little lighter in the pocketbook.

This year, corn prices have fallen sharply, dropping from around $7 a bushel in the summer to about $3.50 a bushel now.

The weak market has also begun to exact a toll on many of the ethanol producers most responsible for fueling the run-up in corn prices.

In Minnesota and Iowa, major ethanol producer Verasun filed for bankruptcy. And in central Illinois, Aventine Renewable Energy has scaled back plans for new ethanol plants.

Darrel Good, an agricultural economist at the University of Illinois, said ethanol makers have been hit by a double whammy this year.

Early in the year, as crude oil prices and ethanol prices were high, ethanol producers were able to afford to sign contracts to pay $7 a bushel for corn. But as the price has dropped, they  in many cases have been left paying almost double the market rate for the corn.

And with ethanol prices slipping along with crude oil and gasoline, their profit margins have been erased or, at best, left razor thin.

"The price they paid has pushed them into the red," Good said. "We may see some of them shut down."

The strain has been reflected in the number of new ethanol plants on the drawing board in Illinois.

According to the Illinois Environmental Protection Agency, nine applications were received for permits for new ethanol plants in Illinois in 2007. In 2008, only one company submitted plans for a plant.

Scott Meyer, a grain merchandiser at agricultural services company Elburn Co-op, said his company is monitoring the fallout in the ethanol business, as about 15 to 20 percent of the corn his company buys from local farmers is resold to the Illinois River Energy ethanol plant in Rochelle.

That plant appears to still be doing well, and is in the process of expanding to almost double its size and ethanol-making capacity.

"They seem to be stable," Meyer said. "But in the larger scheme, there are other (ethanol) plants going belly up, and it is definitely lowering the demand for corn and the price."

Ruh said he thinks the ethanol market will stabilize, as federal production mandates remain in place. But he said farm incomes are still likely to decline this year and again in 2009.

"There's a dip right now in every consumer product," he said. "And I don't see that changing anytime soon."

 town:sugar grove