Forbes Magazine, 8th May

The price of corn, the primary feedstock for ethanol in the U.S., climbed in the first quarter of 2007, as anxiety about supplies reached a pinnacle. The strain on the nation's corn crop is greater than ever, as the food and alternative fuel industries vie for a share of supply.

What a mess !

Government support for domestic ethanol producers through biofuel mandates is having the perverse effect of reducing their profitability and by extension, future investment potential. As any economist would agree, when demand exceeds supply, prices almost always go up and this is exactly what happens when overnight, you start to demand fuel as well as food from a limited and not quickly scaleable supply of corn. Verasun for example has just posted a Q1 loss primarily because it had to pay $4.05 per bushel of corn compared to $1.87 for the same period a year ago. Let's face it, an over 100% inflation rate per annum in your critical feedstock would hurt anyone.

Having said that, high corn prices can work the other way too; in higher ethanol revenues. Although ethanol pump prices are not risng as fast as corn - according to the same article, $2.13 a gallon on average compared to $1.77 last year. Is this just a time lag?

I don't know.

But it might be a useful performance metric to ask any ethanol producer; what are they paying on average per bushel of corn and how successfully are they offsetting that in higher ethanol sales?

If you'll forgive the pun, this just might be a good way of separating the wheat from the chaff of a struggling industry.