Ethanol Margins

Those looking to invest in renewable energy may try investing in ethanol, but beware: ethanol margins are not always on the bright side. Like alcohol, ethanol margins can be rather volatile. In September 2010, Reuters reported that ethanol margins had improved slightly as corn prices had fallen on worries about the economy. Corn is the main source of ethanol in America, so when prices rise, in combination with high natural gas prices, producers get into trouble.

Ethanol margins sometimes are so dismal that hit-hard distillers have to slow operations, causing production shutdowns, bankruptcy filings and curtailments. The year between 2007 and 2008 was particularly bad for the ethanol industry and several distillers went out of business. At one point, as much as 20 percent of the American ethanol industry was idled.

But, as mentioned before, the situation in 2010 seems to have improved and so have ethanol margins, prompting some plants that had shut down to resume production. That doesn�t mean the bonanza will last forever. A September 2010 market forecast warned that, even though ethanol prices have kept pace with rising corn prices in the months before, that could change any time if the US crop shrinks and Latin American crops suffer from unfavourable weather.