As production tops out, ethanol industry feels pinch

Source: E&E • Posted: Wednesday, June 13, 2012

As the ethanol boom in the United States stalls, businesses in the Farm Belt are feeling the sting after years of growth.

Thanks to a near tripling of annual ethanol production from 2005 to 2011, crop prices went up and money flowed into rural communities. But demand has topped out after 15 years of growth as gasoline consumption has declined, according to the Energy Information Administration.

The industry had expanded based on expectations that gas consumption would continue to rise and that ethanol’s share would continue to grow. But gas is projected to be 6.7 percent below its peak in 2007, leaving plants with excess capacity.

“A lot of people are rethinking their assumptions on the ethanol industry and the potential size,” said Jason Henderson, an economist at the Federal Reserve Bank in Kansas City.

In Walhalla, N.D., the biggest employer in the town of 1,000 was the local ethanol plant. But the facility was shut down by owner Archer Daniels Midland Co. in April after lackluster returns, leaving 61 people without jobs and the city without its largest source of tax revenue.

“Jobs like that are hard to come by,” Walhalla Mayor Chris Jackson said (Mark Peters, Wall Street Journal [subscription required], June 11). — JE