The end of the free for all…

Kevin Downing on the MaRS blog thinks that it is going to get harder to fund new ethanol plants. I think that he’s right, not only because the regulatory framework that biofuels plants will operate in is likely to change over the coming months and years, but also I think the economics of biofuel production will also slow the rate at which new plants are built. Not only is credit getting tighter and more expensive, but also the cost of corn has risen dramatically over the past 12 months. According to the FAO the annual average price of corn (US No2, US Gulf Friday) has risen 85% from $88.38/ton in 2000 to $164.26 in 2007. In the same period, the annual average price of wheat has grown 137% from $98.75/ton to $234.76/tonne.
The rate of annual price change is accelerating. In 2007, according to these figures the price of a ton of corn in the US rose by 34% and the price of a tonne of wheat rose by 48 % compared to rises of around 24% for corn in 2006 and 34% for wheat in 2006.
I’ve no idea what’s happened to the price of dried distillers grains, the usual second cash stream from plants, but with the volume of ethanol increasing then I’m going to guess that the price of distillers grains has fallen. Putting the squeeze on anyone trying to build a plant from scratch. And that ignores the price of fuel (also up over the past year) and the cost of water, which could also rise. Biofuels policy should reflect what’s best for the environment, not what’s best for special interest groups like farmers, bankers,bloggers or VC! ;=).

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