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.

Farias, a major northeast Brazil sugarcane group, has signed a protocol of intentions with Chinese investors to build ethanol mills that could process up to 10 million metric tons of sugarcane per harvest, according to a report in local Valor Economico newspaper on Monday.

The Chinese companies interested in investing in Brazilian ethanol mills could be Jilin Fuel Ethanol, Henan Tianguan, Anhui Fengyuan Bio-Chemical and Heilongjiang China Resources Jinyu, which together produce 1 billion liters of ethanol per year, said the report. Possible investments could hit 1.2 billion Brazilian reals, with two greenfield projects currently being analyzed in the northeast state of Maranhao, said the report.

The Farias group currently has five operational mills and a new Goias mill expected to enter operation for the 2007-08 harvest. The group crushed roughly six million metric tons of cane last season, and by 2010, the Farias group plans to hit a crush capacity of just under 15 million metric tons; by 2015, the group plans to process 32 million ton of cane.

U.S. company Tampa Energy and partners are looking to invest roughly $50 million in a new ethanol dehydration plant to be based in the Dominican Republic and to supply the U.S. market, the company’s chief executive officer Arthur McDonnell told Dow Jones.

 
“The plant should start operating in the 2008-09 harvest, perhaps June,” McDonnell said.

 
In the first two years, the plant’s processing capacity is expected to be roughly 50 million gallons (190 million liters) per year, with plans after that to perhaps double capacity, he added. Ethanol exported to the U.S. via Caribbean and Central American countries currently enjoy a tariff-free quota of up to 7% of the U.S. market, under a trade agreement known as the Caribbean Basin Initiative (CBI).  Once that quota is exceeded, companies have to pay a hefty 54-cent-per-gallon U.S. ethanol tariff if the ethanol uses imported feedstock.

 
Companies currently exporting ethanol tariff-free to the U.S. via the CBI include U.S. multinational Cargill Inc., London-based trading company ED&F Man, and leading Brazil ethanol exporter Coimex.  Companies such as Coimex, however, point out that they are already looking at investing in local feedstock production in the region, since ethanol sourced from local feedstock have no quota set for tariff-free sales to the U.S.

 
Tampa Energy and its partners are also looking to build a 130,000 metric ton plant in the Caribbean that will produce gasoline additive ETBE, or ethyl tertiary butyl ether, which uses ethanol as a feedstock.

Yesterday, Senator Pat Roberts applauded the U.S. Department of Energy’s selection of Abengoa Bioenergy Biomass of Kansas to receive a $76 million federal investment to locate a cellulosic ethanol plant in Kansas.

The plant will use 700 tons per day of corn stover, wheat straw, milo stubble, switchgrass, and other feedstocks, and will produce 11.4 million gallons of ethanol annually and enough energy to power the facility; any excess energy will be used to power the adjacent corn dry grind mill.  Kansas was one of six locations chosen to help bring cellulosic ethanol to the market.

Roberts delivered the following statement: “I am very pleased the Department of Energy has chosen to make this significant investment in both renewable fuels and ultimately, the Kansas economy. This technology is cutting edge and represents the next wave in renewable energy. This is an opportunity to grow our rural economy while reducing our nation’s dependence on foreign oil.”

President George Bush said yesterday that the key to keeping U.S. cattle and hog farmers from feeling the pinch from rising feed-corn prices is a breakthrough in cellulosic ethanol production technology.

Critics of the President’s energy policy say that Bush’s strategu of offsetting 35 billion gallons of gasoline use a year by 2017 with alternative fuels such as ethanol is unrealistic and could make feed-corn prices significantly more expensive.

Nonetheless, President Bush said he was confident in his goal, but it would require continued government funding. Cellulosic ethanol “is coming to fruition, and the role of the government is to stimulate thought and investment.” 

The Bush administration has asked Congress for up to $4 billion in loans guarantees for biofuel projects, which would include plans to build biorefineries and cellulosic ethanol plants, which produce motor fuel from biomass such as wood chips, switchgrass, and corn stover.

The President says his 35 billion gallon goal is supposed to help cut U.S. dependence on foreign crude supplies and address climate change through cleaner-fuel. The Administration is aiming that 20 billion gallons will come from cellulosic ethanol, with only around 15 billion gallons likely to be supplied through corn-based ethanol due to market constraints.

Presently, however, it’s technically unfeasible to produce cellulosic ethanol commercially because of the high cost of enzymes that break down the corn starch into sugar for fermentation, and some energy analysts wonder if a breakthrough is possible within the timeline set by Bush.

“I know it sounds like a pipe dream to some…(but) we’re on the verge of some breakthroughs that will enable a pile of woodchips to become the raw materials for fuels that will be able to run your car” he added.  If cellulosic ethanol doesn’t become commercially viable in time, the Buch administration is hoping to use coal-to-liquid production, another alternative fuel, to help meet the 35 billion gallon goal.

Abengoa Bioenergy, a unit of Spain’s Abengoa SA and Europe’s biggest producer of ethanol, said that it wants to build a $200 million ethanol plant in Madison, IL, that, with the necessary permits, could be operational by 2009. 

 
Speaking of permits, Abengoa already has a permit to build an ethanol plant in Indiana, which would join Albenoga ethanol plants in  Nebraska (a second Nebraska plant is being built too) and Kansas.

 
The Illionios ethanol plant would reportedly employ 50-60 people and produce 88 million gallons of ethanol per year.

Increased ethanol production and President Bush’s push for a greater emphasis on renewable energy sources seems to be the cause of some controversy in the poultry industry.  Speaking at the National Turkey Federation’s annual convention in Tucson yesterday, Samantha Slater, director of congressional and regulatory affairs with the RFA, discussed the pros of ethanol before an audience confronted with ever-rising corn prices.

Though the poultry industry faces corn prices of about $4 per bushel, Slater said the grain-based ethanol industry is paying far less for product. “about $2.20 to $3 a bushel, though the spot price is much higher.”

More than 100 grain-based ethanol plants are “on the line” today, Slater said, with 77 more under construction to meet growing U.S. demand for the fuel source.  In all, some 4.9 billion gallons of ethanol were produced in the United States last year against demand of about 6 billion gallons, Slater said. The remainder was imported from Brazil.

Economist Tom Elam, president of FarmEcon.com, said it will be difficult to seamlessly integrate ethanol into the U.S. economy. “An 8-million to 10-million acre increase in corn will drop prices, but cause soybean meal prices to rise” owing to corresponding declines in soy acreage, and at a time when McDonalds Corp. is looking to substitute soybean oil for Canola in their cooking oils.

Some argued that grain-based ethanol demand and resulting corn prices will add to the price of U.S. poultry exports, making them less competitive than exports from Brazil, which relies on sugar cane to manufacture ethanol.  Elam said that as long as oil prices to remain high, so too will the price of corn, owing to greater demand for renewable fuels. “As long as crude oil prices are north of $50 [per barrel],” he said, “we’ll see corn above $3 [per bushel].

Carnegie Mellon University researchers have used advanced process-design methods, combined with mathematical-optimization techniques, to reduce the operating costs of corn-based bio-ethanol plants by more than 60%.
   
Redesigning the distillation process by using a multicolumn system together with a network for energy recovery that ultimately reduces the consumption of steam, a major energy component in the production of corn-based ethanol, has been the key to the Carnegie Mellon strategy.
   
“This new design reduces the manufacturing cost for producing ethanol by 11 percent, from $1.61/gallon to $1.43/gallon,” said chemical engineering professor Ignacio E. Grossmann. “This research is also an important step in making the production of ethanol more energy efficient and economical.”

Yesterday, Credit Suisse analysts said that with corn futures prices passing $4 a bushel, ethanol plant expansion might be limited in years to come.

 Plants that are under construction this year into the first half of next year will likely be completed, but beyond that, companies will be careful to proceed with expansion plans and cancellations are possible. David Nelson, a research analyst at Credit Suisse, said the stocks-to-use ratio for corn is at its second lowest level in the last 50 years.

Normally the stocks-to-use ratio for corn ranges between 10% and 20%, but it was lowered by the USDA to 6.4%. The last time the usage ratio was this low was in 1996, when CBOT corn futures traded at more than $5 a bushel.

Yesterday, Credit Suisse analysts said that with corn futures prices passing $4 a bushel, ethanol plant expansion might be limited in years to come.

 Plants that are under construction this year into the first half of next year will likely be completed, but beyond that, companies will be careful to proceed with expansion plans and cancellations are possible. David Nelson, a research analyst at Credit Suisse, said the stocks-to-use ratio for corn is at its second lowest level in the last 50 years.

Normally the stocks-to-use ratio for corn ranges between 10% and 20%, but it was lowered by the USDA to 6.4%. The last time the usage ratio was this low was in 1996, when CBOT corn futures traded at more than $5 a bushel.