Valero Energy Company has temporarily suspended operations at two ethanol production plants due to high corn prices and low ethanol demand.
Valero suspended production at its Albion, Nebraska facility on June 19 and its Linden, Indiana facility on June 26. Valero is keeping eight other plants operational for now.
High Corn Prices Blamed
Company spokesman Bill Day said each of the closed production facilities has the capacity to produce 120 million gallons of ethanol per year.
“Linden and Albion both had higher-than-normal corn basis prices. Ethanol margins everywhere have been squeezed, but in those areas in particular they actually went negative due to high corn prices and lackluster gasoline demand. Still, ethanol prices remain below gasoline, so there is an incentive for discretionary blending,” Day said.
“Valero has made a smart economic choice in cutting back ethanol production, faced with significant price increases in the primary feedstock—corn,” said Tom Tanton, president of the California-based energy and technology consulting firm T2 & Associates.
Variable Production, Prices
Tanton points out ethanol producers are having a difficult time making an affordable, marketable product despite being given a guaranteed market share and generous federal and state subsidies. In addition, corn prices and the corn crop fluctuate significantly from year to year, making ethanol production less reliable than many people realize.
“Much of domestic corn is grown without the benefit of irrigation, so naturally droughts—or even less than average rainfall—can limit the production of the basic building block for ethanol,” Tanton explained.
“Maybe it is time to revisit renewable fuel mandates,” Tanton concluded.
Alyssa Carducci ([email protected]) writes from Tampa, Florida.
