Rising Ethanol Prices Another Blow

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Ongoing drought in Midwest America is driving up the price of ethanol and threatening the long term sustainability of the biofuels industry. Heavy water shortages across the “corn belt,” the major maize producing region of the United States, have damaged the supply of corn bushels, driving up the price of ethanol fuel.



This is another blow to the biofuels industry at a time when it is facing sustained criticism from politicians and environmental groups worldwide. Many people claim that ethanol is not a long term alternative to fossil fuels due to associated rises in global food prices and changes in land use. This latest blow, however, even casts doubt over ethanol’s ability to provide a short term fuel solution.



According to the USDA, record-high corn prices are likely to B2B Email List continue throughout 2013, rising up to 19 per cent higher than the last two years; in some cases, farmers in Missouri have seen their annual crops fall to up to 5.5 percent of their normal yield. Nearly 10 per cent of the US’s ethanol plants have ceased production in the past year, unable to cope with rising resource costs and shrinking demand.



Government intervention and bloated supply



Only five years ago, ethanol was hoped to be the savior to the long term depletion of fossil fuels. As a wholly renewable source of energy, the fuel can be blended with traditional gasoline and sold at gas stations across America. For the last 10 years the US government has mandated that gasoline must contain at least 10 per cent biofuel. Ethanol production was subsequently supported with a tax credit of 45 cents per gallon, although this deal expired at the end of 2011, making it a lucrative trade for farmers and producers.







As a result, the number of ethanol plants has grown to hundreds in US states like Missouri, bringing huge economic gains to small towns. Farmers have been able to find a new market for their corn crops, while ethanol producers reacted by building new plants and creating thousands of new jobs.



However, recent economic conditions have since exposed weaknesses in the government’s biofuel policy. The original 10 per cent ethanol mandate assumed that overall demand for gasoline would grow over time. However, the current recession has seen overall demand for gasoline, and ethanol, shrink, exposing a bloated ethanol industry overly reliant on state subsidies.