Projected Ethanol Production Rise
An article in today’s Chicago Tribune reports that, according to analysts from UBS AG and Friedman, Billings, Ramsey & Co., U.S. ethanol output could rise as much as 60 % by the end of the year.
As a result of more ethanol plants opening and beginnning operations, both prices and profits could be hurt, analysts explain. As supplies increase, ethanol producers will have to cut prices to compete with gasoline and profits will be trimmed, analysts said Monday in separate reports.
In January, ethanol production jumped about 5% to a record 5.9 billion gallons a year, from 5.6 billion gallons a year at the end of 2006, according to U.S. government statistics, the report from UBS said. If growth were to continue each month at that rate, ethanol production would be at about 9 billion gallons a year by the end of 2007, according to the analysts. “It is difficult to tell at this point if there is a strong link between ethanol stocks and pricing; however, we think this data may become more important as more supply enters the market,” wrote one analyst in a UBS report.
In a separate report, Friedman, Billings, Ramsey & Co. estimates that ethanol supplies may rise as much as 33% to 7.6 billion gallons by the end of the year, exceeding demand. Friedman lowered its ethanol price forecast for 2007 to $2.05 a gallon from $2.10 a gallon and cut its forecast for the years 2008-2010 to $1.95 a gallon from $2.00 a gallon. “We are adjusting our commodity price forecasts and reducing our earnings estimates and price targets accordingly,” wrote Eitan Bernstein, an analyst at Friedman. More operating plants, higher prices for corn - the primary ethanol feedstock - and continued competition from gasoline will lead to reduced margins, the Friedman report said.