The mania over biofuels helped drive grain and oilseed prices up, up and further up earlier this year. That makes sense for two reasons: 1) Most biofuels are made from cereal grains (ethanol) or oilseeds (biodiesel); 2) High oil prices sucked up any substitute that could be used to replace them, and biofuels rushed to fill the void. Crops became energy stocks.
But now that oil prices have plunged to a third of what they were earlier this year, many have pondered whether there will be any more push for more biofuel plants. Very few were ever built in Canada, but in Iowa and other parts of the U.S. Midwest lots were.
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And some have wondered if ethanol plants will be shut and abandoned if the owners go broke. An analyst I spoke to recently said he thinks the plants will keep running no matter what, because even if their owners go broke, someone else will take over at 10 cents on the dollar and get them running again.
However, there’s a good chance that those biofuel plants, even if they all keep running, won’t be so aggressive in buying farmers’ grain in the future. A United States Department of Agriculture report released yesterday lowers the amount of corn it estimates ethanol production has been consuming, and who knows what the next few months will bring as the economic crisis bites into overall fuel demand.
But it’s clear that the once-clear path to prosperity for farmers via biofuels now seems pretty blocked-up, and even if oil prices recover it may not open up quickly. This credit crisis has destroyed a lot of investment money, it has terrified venture capitalists, and the plunge in crop prices has made farmers – like everyone else – hoard their money.
Biofuel prices may recover. Plants may start making money again. Demand for crops from biofuel plants may boom again. But once again that rural diversification dream that seems so attractive when talked about at meetings seems to fade considerably in the cold light of today’s post-slump dawn.
