The federal government, through the Renewable Fuels Standard, mandates that gasoline sold in the U.S. contain 10 percent ethanol, or ethyl alcohol.
The ripple effect of last year's drought has endured for months, and because ethanol production profit margins rely on local supplies of corn, about 25 of the nation’s 211 ethanol production facilities sit idle, according to the Washington D.C.-based Renewable Fuels Association (RFA).
For example, ethanol plants in Albion, Neb., North Linden, Ind., and Bloomingburg, Oh., owned by San Antonio-based Valero Energy Corporation (NYSE:VLO) have seen production halted since June. Abengoa Bioenergy Corporation of Chesterfield, Mo., a subsidiary of Spanish engineering company Abengoa SA (MCE:ABG) stopped production of six plants in January: two in Nebraska and one each in Texas, Kansas, California and Missouri.
Workers at these plants are devoting their time to general maintenance operations while plant owners monitor the weather to see if 2013 will see a repeat of last year’s crippling drought.
"There's a lot of anxiety in the industry right now about the drought and a lot of folks watching the weather and hoping and praying this drought is going to break," Geoff Cooper, vice president for research and analysis for the RFA, told The Associated Press.
There is some indication that the situation will improve this year. The U.S. Department of Agriculture revised its crop yield forecast upward in its February 2013 report; it now expects the 2012-13 corn-growing season to end with 632 million bushels in surplus. But that’s still 36 percent lower than the 989 million bushels left over from the previous year after sales and exports are taken into account.
Competition for a smaller supply of corn will continue to weigh on production in the ethanol industry, whose output has skyrocketed from 2.1 billion gallons in 2002 to 13 billion gallons last year, according to the RFA. In the U.S., almost all ethanol is made from corn and almost 40 percent of all U.S. corn is used to make the gasoline additive.
The corn crisis comes less than a year after the ethanol industry lost a 46 cents per gallon tax credit, amounting to a $6 billion a year ethanol subsidy, the RFA said.