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Expert: Industry is 'suffering'

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Stacy Vogel
March 16, 2009
— Wisconsin's ethanol industry is in survival mode, local experts said.

"They're all struggling," said Russ Kashian, associate economics professor at UW-Whitewater.


Low gas prices and a nationwide recession have combined to strangle the demand for ethanol. As ethanol hovers just over or even below the price of gas, distributors are less inclined to mix 10 percent ethanol into gasoline. Interest in E85, a combination of 85 percent ethanol and 15 percent gasoline that runs in flex-fuel vehicles, has dropped as well, Kashian said.


Randy Fortenbery, professor of agribusiness at UW-Madison, estimated most plants are losing 8 to 10 cents on every gallon of ethanol they produce.


Renew Energy, the state's largest ethanol plant, has filed for bankruptcy, and several planned ethanol plants have ground to a halt.


Whether the state's remaining eight plants avoid bankruptcy depends on several factors, Fortenbery said:


-- Whether the plants bought corn far in advance. Corn prices last summer were double what they are now.


-- How much debt the plants have. Many ethanol plants are new and still owe money for construction. Older plants were able to pay down more debt in 2006 and 2007, when profit margins were much higher, he said.


Also, construction costs rose for ethanol plants in the last few years, so older plants incurred less construction debt in the first place, he said.


-- How long the market takes to turn around. Fortenbery doesn't believe gas prices will stay this low forever, but the longer they stay down, the harder it will be for ethanol plants to continue.


As a commodity, ethanol doesn't have high profit margins, so the most efficient plants will survive, he said.


"A lot of who does survive will be a function of who can produce ethanol at the lowest price," he said.



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