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Ethanol Margins Not Seen Improving

Despite more U.S. corn on hand, USDA is not expecting profit margins for ethanol to rise this fall.

Farmers are responding to surging demand for corn to make ethanol by doing what they do best: producing more corn. In 2007, estimates have the new corn crop at more than 13 billion bushels, which is well above the 10.5 billion produced in 2006.

But USDA does not expect ethanol profit margins to rise this fall despite a greater availability of corn. A Morgan Stanley analyst notes that ethanol profit margins for refiners were near 80 cents per gallon despite market prices for corn above $4.25 per bushel. That was due to higher ethanol prices.

However, ethanol prices have since slipped about 35 cents per gallon, while corn prices have remained strong. That will tighten margins for plants in operation.

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