Sector Snap: Surging corn prices slash ethanol

Corn prices Wednesday jumped to above $7 a bushel for the first time--the fifth straight day the commodity reached record prices. The jump stemmed from heavy rains in Midwestern states, including Iowa, Indiana and Wisconsin, that have flooded fields and forced some farmers to either stop planting or switch crops.

The effect on ethanol producers has been devastating.

"In the last 10 days the world has changed in the corn market with massive flooding causing irreparable damage to this year's crop and pushing corn prices up $1 over this time frame," Citi Investment Research analyst David C. Driscoll wrote in a client note.

"As a result of this unprecedented weather event which has happened only twice in the last 25 years, ethanol margins have plummeted over the same ten day time span with small and mid size ethanol producers now running at substantial losses against cash costs."

He expects such small and mid-sized producers to halt operations.

Shares of BioFuel Energy Corp. plummeted 23 percent to $2.99, Verasun Energy Corp. tumbled 11 percent to $4.75, Pacific Ethanol Inc. dropped 15 percent to $2.38, Aventine Renewable Energy Holdings Inc. fell 4 percent to $4.73 and Archer-Daniels-Midland Co. lost 10 percent to $33.54 on more than 3 times average volume.