Ethanol producers able to weather lower corn harvest: analyst

Ethanol producers able to weather lower corn harvest: analyst

New York (Platts)--12Oct2006

US government data that lowers the expected 2006/2007 world corn harvest
and raises prices was not as negative for ethanol producers as it seemed,
according to analyst Jacques Rousseau Thursday.

"It is important to keep in mind that the projected 10.9 billion bushel
harvest would still be the third-largest ever," said Rousseau, with Friedman,
Billings, Ramsey.

The Department of Agriculture's World Agricultural Supply and Demand
Estimates report for October released Thursday lowered the 2006/2007 corn
harvest forecast by 209 million bushels and raised the 2007 corn price
forecast to $2.40-$2.80/bushel from $2.15-$2.55/bushel.

Rousseau said there is "typically a 4-to-1 relationship between corn
prices and ethanol production costs, with each $0.20/bushel rise in the price
of corn suggesting an increase of only about $0.05/gallon to ethanol
production costs.

"Longer term, we believe higher corn prices should result in increased
supply from further yield improvements, crop switching, and the commitment of
more land to farming," Rousseau added.

Shares of the ethanol producers have been tumbling in line with lower
prices for gasoline and ethanol. Pure-play ethanol producer VeraSun was
trading around $18.82/share Thursday morning, down from its $30 debut as a
public company earlier this year.

--Beth Evans, beth_evans@platts.com

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