2. Rising feedstock prices and tight profit margins
The record price levels of feedstock for ethanol production are without doubt the second most important development for the ethanol industry in 2007. In Europe, wheat is the main feedstock for ethanol production and it rose above $10 per bushel for the first time. Failed harvests in Europe, extreme drought in Australia and increasing demand from India and China meant that wheat stocks are now at their lowest level for 25 years according to the International Grain Council. Cash prices for corn, which is the feedstock for over 95% of ethanol in the United States, rose to $4 dollars per bushel across the Upper Midwest while CBOT’s March contract trades at roughly $4.50. This, in addition to the rising crop production costs due to rising oil prices, put significant pressure on the profit margins of ethanol producers in Europe and the United States, as they lack vertical integration that Brazilian producers have. But even in Brazil, producers have found it hard to retain solid profit margins as ethanol exports declined and sugar prices suffered from oversupply. As a result, new ethanol projects have been delayed and small producers are struggling to continue their operations.
Besides the tight and sometimes negative profit margins, rising feedstock costs also fuelled the food vs. fuel debate. Ignoring the role of oil prices, increasing demand for grains and failed harvests in Europe and Australia, environmental organizations as well as competing industries blamed the ethanol industry for increasing food prices.
Because the consequences of rising feedstock costs had a significant impact on all three major production regions, they are listed number 2 in the most important ethanol events list of 2007.
10. Vale do Rosario and Santa Lisa merge to become second largest Brazilian producer
9. New ethanol markets keep developing globally
8. Brazilian ethanol producers file for IPO’s
7. Foreigner’s share doubles in Brazilian ethanol market
6. US Bioenergy and VeraSun Energy merge
5. Oil prices rise 57% on supply concerns and geopolitical tensions
4. US Department of Energy invests over 1 billion in biofuel R&D projects
3. EU heads of state agree on mandatory biofuels target, 10% by 2020
2. Rising feedstock prices and tight profit margins
© Ethanol Statistics 2008
|