Prices down 30 percent; more plants being built

OMAHA, Neb. (AP)--Oversupply of ethanol has dropped its price 30 percent this year at the wholesale level, and producers say federal renewable fuel legislation would help solve overproduction problems.

Proposals before U.S. Congress would require the country to use from 5 billion to 8 billion gallons of ethanol annually. Reps. Tom Osborne, R-NE, and Steve King, R-IA, are pushing for 8 billion gallons.

The United States used about 3.6 billion gallons of ethanol last year as a gas additive, or about 3 percent of the total fuel market, according to the Renewable Fuels Association.

Ethanol sold in mid April at about $51 a barrel, or $1.22 a gallon on the wholesale market, down 32 percent from $1.80 a year ago and down nearly 30 percent from $1.72 in January.

Nationally, there are plans to add about 750 million gallons of capacity this year. Nebraska has at least nine new plants under development and Iowa has 12.

Historically, ethanol prices have tracked gasoline pretty closely, but that has not been the case recently, said Todd Sneller, executive director of the Nebraska Ethanol Board.

Part of the price shift likely is due to semiannual contracts that refineries typically negotiate in April with ethanol producers. In the past month, the Chicago Board of Trade also has started selling ethanol on the futures market.

"No one is quite sure how to quantify the impact of this on the price response, but there seems to be more volatility on the market because of that," Sneller said.

Ethanol producers also make livestock feed as a byproduct, and that helps their bottom line, Sneller said.

Dave Hallberg, president and chief executive of BioClean of Nebraska, which is working on a $20 million ethanol plant near Mead, said declining ethanol prices have repercussions for developers of ethanol plants, because potential financial backers may question the fuel's viability.

Passage of a renewable-fuels standard, particularly a higher one, would reverse the buying psychology overnight, Hallberg said. Mandated standards are needed because petroleum refiners will buy only what the law demands, Hallberg said.

Some states are looking to increase requirements for ethanol use.

Montana lawmakers are considering a bill similar to Minnesota law that mandates the use of ethanol blends. Minnesota requires all gasoline sold in the state to have a 10-percent ethanol blend.

In California, efforts are underway to bump the blend from 5.7 percent to 7.7 percent of gasoline.

"If you look at that increment change, it's small on a per-gallon basis, but if that occurred across California, that's about a 300-million-gallon demand factor," Sneller said.

Date: 4/19/05