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Expansion in U.S. ethanol on hold after blending targets slashed

(Dave Bedard photo)

Chicago | Reuters –– Expansion in the U.S. ethanol industry, stuck in neutral for more than a year as the government debated biofuel blending requirements, is now likely to come to a screeching halt.

With the U.S. Environmental Protection Agency last week essentially maintaining the so-called blend wall that mandates nearly every gallon of gasoline sold in the U.S. contain 10 per cent ethanol, there is little need for new plants in a saturated market, industry sources said.

Ethanol makers are putting expansion plans on hold as profit margins sag, threatening corn producers already suffering from low grain prices and massive supplies.

Existing ethanol facilities can supply as much as 15.75 billion gallons, according to Scott Irwin, an agriculture economist at the University of Illinois specializing in biofuels.

That is more than enough to meet demand for domestic blending for this year of about 13.4 billion gallons of corn-based ethanol as well as export demand, on pace to reach roughly one billion gallons.

“We have the supply handled — we’re a little long on supply,” said Mark Warren, chief financial officer at consultancy Ascendant Partners.

An ethanol plant in North Dakota that began operating last month was the first such startup in five years and, possibly, the last for the foreseeable future.

Ethanol stockpiles of 20 million gallons are the largest in about three years, prices of $1.50 per gallon hovering near the lowest levels in a decade (all figures US$).

Dakota Spirit AgEnergy, a $155 million project, is fine-tuning the ethanol plant that will be able to produce 65 million gallons annually, said Jeff Zueger, chief executive officer of Midwest AgEnergy Group.

Another 70 million-gallon-per-year plant is planned in Onida, South Dakota, but must first pass a referendum on June 16 in which local voters will determine if the facility can be built near town. And REX American Resources is deciding whether or not to construct a new facility in Atlantic, Iowa.

“We certainly have the permit now and we’re doing a cost analysis,” REX president Zafar Rizvi said. If the plant appears unprofitable, the company will “move on,” Rizvi added.

No other new ethanol plants are in the works, industry sources said.

Top producer Archer Daniels Midland, which closed an ethanol plant in North Dakota in 2012, has no plans to expand ethanol operations, company sources said.

Producers still are earning money, benefiting from record supplies and the lowest corn prices in five years.

But current profit margins of about 30 cents per gallon pale in comparison with the record profits of $2 per gallon last year and are a dime below average returns from the last eight years, according to Iowa State University.

Michael Hirtzer reports on grain markets for Reuters from Chicago.

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