Enough With the Ethanol, Already?

According to this New York Times article, we editors may finally see a dip in the number of press releases announcing new ethanol plants. It seems that we've filled the distribution system to capacity, and new ethanol produced will sit idle for a while before it can get shipped to the states where it's in high demand.

That would be states like New Jersey, where ethanol is a required additive to gasoline now that MTBE is no longer considered safe. New Jersey doesn't grow a lot of corn (despite being the Garden State), or at least much corn that gets turned into ethanol nearby, so the stuff has to come in by the tanker truckload or by special railcar. (Ethanol can't be piped through a network like gas, because it will absorb water and corrode the metal pipes.) There aren't enough special rail cars ready to move it all.

You'd think the price would be high with such high demand. But look at the supply side: farmers are not getting a high price for their corn meant for ethanol production, because the distilleries are sitting on plenty of product they can't move efficiently--more corn is the last thing they need right now. Now there are some states that can get ethanol more easily than others--those states where the corn is grown and distilled into ethanol, namely, because it's a short truck ride. Because the distilleries have too much product, they have to lower the price of ethanol to get these closer states to buy more of it. High supply, high demand, low price, and a thin little line connecting them. Eventually that line will become fatter as a real distribution network comes into its own (and at that point what happens to price has much more to do with supply and demand only), but until then, your investment dollars should flow into the logistics side of the ethanol business.