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To: LoneClone who wrote (88193)	7/26/2007 10:09:16 PM
From: LoneClone	Respond to of 206270

U.S. ethanol profits improve as corn prices slump Thu Jul 26, 2007 3:12PM EDT reuters.com By Mark Weinraub CHICAGO, July 26 (Reuters) - U.S. ethanol plants are recovering from a slump in profit margins following steady declines in corn prices the past month, but industry sources are expecting more volatility in the renewable fuels market. "You have got more volatile markets which can lead to bigger swings in profit and loss," said Jason Sagebiel, a risk management consultant with commodity risk management and trading company FC Stone. A U.S. Agriculture Department report issued in late June said that farmers planted the largest amount of corn acres since 1944 and spurred a sell-off in corn that has shaved about 9 percent off corn futures prices in the past month. The sell-off led to a rebound in profit margins at ethanol plants, which had been struggling due to high input costs as corn prices hit 10-year highs in March. "High corn prices have weighed on the ethanol sector for much of 2007, but we see the industry reaching an inflection point as profitability should be much improved in 2008 given our projections of reduced corn costs driving profit gains," Citigroup analyst David Driscoll said in a research note. Ethanol production is supported by government subsidies of 51 cents per gallon but many producers' profits were threatened when corn prices were hovering around $4 per bushel earlier in the year. "Seeing it run up as fast as it did ... has made our board of directors ... a lot more cautious," said Ryland Utlaut, president of ethanol producer Mid-Missouri Energy. When corn prices were at their peak levels, many ethanol producers employed hedging strategies to protect them from further increases. Those strategies, while necessary to provide insurance in a volatile market, proved costly when prices fell throughout July and chilled some ethanol producers' enthusiasm. "We cannot expect any kind of return like we had last year," Utlaut said. Citigroup's Driscoll, who placed a "buy" rating on shares of alternative energy producers VeraSun Energy Corp. (VSE.N: Quote, Profile, Research) and Biofuel Energy Corp. (BIOF.O: Quote, Profile, Research) earlier in the week, said he expects corn prices to average around $2.75 per bushel in the long term. Energy analysts have said that a 20 cent per bushel drop in corn prices adds about 5 cents per gallon to ethanol plant profit. The run-up in corn prices earlier this year caused some ethanol producers to cut back on their investments in the industry. Mid-Missouri Energy, a farmer-owned cooperative, tabled its discussions about doubling the size of its ethanol plant, Utlaut said. The company may still boost capacity in the future but there are no definite plans, he added. But not all companies are backing away from investments. VeraSun, the second-largest ethanol producer in the United States, said earlier this week it will pay $725 million to buy three ethanol plants from ASAlliances Biofuels LLC. The deal, which will add 330 million gallons to VeraSun's annual ethanol production capacity, is expected to boost the company's earnings within the first year. (Additional reporting by Sam Nelson in Chicago)