Did somebody say bubble?

The NYTimes reports an ethanol "glut."

Only last year, farmers here spoke of a biofuel gold rush, and they rejoiced as prices for ethanol and the corn used to produce it set records.

But companies and farm cooperatives have built so many distilleries so quickly that the ethanol market is suddenly plagued by a glut, in part because the means to distribute it have not kept pace. The average national ethanol price on the spot market has plunged 30 percent since May, with the decline escalating sharply in the last few weeks.

“The end of the ethanol boom is possibly in sight and may already be here,” said Neil E. Harl, an economics professor emeritus at Iowa State University who lectures on ethanol and is a consultant for producers. “This is a dangerous time for people who are making investments.”

While generous government support is expected to keep the output of ethanol fuel growing, the poorly planned overexpansion of the industry raises questions about its ability to fulfill the hopes of President Bush and other policy makers to serve as a serious antidote to the nation’s heavy reliance on foreign oil.

We did talk about an alternative energy bubble last week. As long as Senator Grassley breathes, however, I think ethanol providers are safe. And the article makes clear that the problem is not a lack of demand as a lack of distribution, so I am not flying my schadenfreude flag just yet.

UPDATE: The WSJ weighs in as well:(paid link)

Financing for new ethanol plants is drying up in many areas, and plans to build are being delayed or canceled across the Midwest, as investors increasingly decide that only the most-efficient ethanol plants are worth their money.

Some ethanol companies are "under deathwatch" now, says Chris Groobey, a partner in the project-finance practice of law firm Baker & McKenzie, which has worked with lenders and private-equity funds involved with ethanol.

Oil and Energy Posted by jk at September 30, 2007 1:43 PM