Will Corn-based Ethanol Go Belly-up?

Are the days of fast and easy ethanol profits over? According to a recent CNNMoney.com article, the answer is a resounding yes. With bankruptcy plans and canceled ethanol plants worth $200 million being abandoned (over 50 in the past few months alone), corn prices are taking the blame. With the demand for corn going gangbusters, prices per bushel have gone from $2 (2006) to over $5.25 (current). And that all shakes out to dropping profits--and the demise of the little guys, with lower profit margins favoring the truly big-scale producers like Archer Daniels Midland.

So does that mean we should forget about ethanol's viability as an alt fuel? We say not. While the government's Twenty in Ten mandate targets biofuel usage at 35 billion gallons by 2022 (now granted, that includes biodiesel), it hasn't lifted that 54-cent per gallon tariff on imported ethanol, and that makes this shakedown inevitable. Is anyone really surprised here? Ethanol is in the throes of its transition from small-time to big player in the country's fuel supply, and as we see, it's been a bumpy ride so far. Now it's time to branch out from the heavy reliance upon corn as the sole feedstock of this alcohol fuel.

While the big guys entrenched in the corn-based ethanol industry look like they'll weather this tough period just fine, we say that it's time for the government to take action where we think it counts most: tax incentives for the little guys to nurture biomass development. We've been big supporters of cellulosic ethanol production for years, but the funds for research and development have been scarce to non-existent. Maybe the corn price debacle will finally wake us up to the folly of putting all our eggs in one basket.

photo © Getty Images / Scott Olson - Will Illinois River Energy's 50-million gallon per year ethanol plant survive?