High corn hits both ethanol producers and food industry

11 August 2008

Mumbai: Ethanol producers in the US and in many other countries have seen steep second-quarter losses amidst rising corn prices. At least one company reported a net loss of $8.3 million ( against a $2.2 million net profit during the same period in 2007) after a 74 per cent increase in net sales.

Corn prices have risen by 67 per cent this year, making investment in ethanol companies relatively risky even as demand for the the renewable fuel has been driven by fuel subsidies and green concerns.

Ethanol companies are increasingly under the mercy of commodity prices, mainly corn, as high prices of corn continues to erode margins as the government refuses to lower ethanol quota for fuels.

Food and livestock industry groups, meanwhile, are seeking to change the law  that, they say, has led to skyrocketing corn prices that has pushed up food prices and hit the livestock industry badly.

The US Senate is discussing a freeze on ethanol quotas at current levels from the current 9 billion gallons to 4.5 billion gallons next year.

Federal law requires that the nation use 9 billion gallons of renewable fuel this year and 11 billion gallons in 2009, and this could go up to 36 billion gallons by 2022.