Demand Destruction: Ethanol
The Progressive Farmer: Market Matters Blog
Katie Micik DTN Markets Editor
Monday 07/16/12
The ethanol industry is in a position to do a considerable amount of rationing given the recent surge in corn prices, Purdue agriculture economist Chris Hurt said. Corn prices are high enough that many ethanol plants can't produce the fuel profitably and some are shutting down.
Economists call this demand destruction. But Hurt thinks it won't all happen in one fell swoop.
"I think one of the keys is, as long as ethanol price per gallon is below gasoline prices, then gasoline companies have continued incentive to blend ethanol and what that means is they'll do it on a volume basis," Hurt told DTN.
As the price of corn escalates, some plants shut down, making supply less available. That bids the price of ethanol up and enables plants to pay more for their corn.
"So I think there's some stop and go on some of these ethanol plants, depending on how all these price relationships interact," Hurt said.
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