1. Biofuels Economist & University Professor Ag Marketing Resource Center
Current Status of Ethanol: Causes of the Crisis & Emerging Challenges
By Dr. Robert Wisner
Biofuels Economist & University Professor
Ag Marketing Resource Center
Iowa State University
Ames, Iowa U.S.A.

2. Current Environment
Several major bankruptcies: VeraSun, Pacific Ethanol & others
About 15% of the 170 U.S. ethanol plants are idle
The remainder operating at avg % of capacity
Plants under construction (17), completed, or nearly completed could add about 20% to capacity
Approximately $1.25/bu. drop in corn prices since June 11 helps returns

3. Factors Behind Bankruptcies
Excess industry capacity due to rapid growth & failure to fully assess impact of growth on corn market
Excessive debt
Plant design defects
Poor risk-management strategies
Protecting price of feedstock rather than protecting margin
Use of pricing tool unsuited for extreme market volatility

7. Assumes all consumers are willing to use ethanol

10. Will big ethanol returns re-occur? Probably not.
Slower market growth with ethanol as gasoline substitute
Ethanol may soon be largest user of U.S. corn
Large % increase in ethanol a few years ago had small corn market impact
That’s no longer true
Will it be true in the future? Depends on corn yield trend
Cellulose ethanol: higher cost + competing in E-85 market

12. Ethanol Contribution to Energy Self-sufficiency
2008: ethanol equivalent to 4.2% of U.S. crude oil use & 6.3% of crude oil imports -- on a volumetric basis
Energy-equivalent basis: 2.8% of crude oil use & 4.2% of U.S. crude oil imports
Use of petroleum in ethanol production is not deducted from these numbers, so actual contribution is less
Conclusion: view ethanol as one element in a portfolio of potential contributions to U.S. energy self-sufficiency

13. Conclusions
Ethanol industry will struggle with over-capacity until blending wall is eliminated, & possibly longer
Future growth depends on GHG & blending policies, corn yield trend, cellulose technology break-through
Industry to become more integrated with petroleum, have fewer firms
Future of cellulose ethanol questionable
Mandates next 3 yrs. 100, 250 & 500 mil. Gal.