Sept. 30, 2007 (LPAC)--Barely two years after the 2005 U.S. national biofoolery law mandating a shift to more bio-energy, the ethanol bubble is popping. The national average spot price for ethanol has dropped below the $2 a gallon range, way down from the high of $3.00 in Fall 2006. The price has fallen 30% just since May. This drop reflects the combined effect of lack of transportation capacity to move the product, the jump in corn prices, and the rush to build distilleries and gush out gallons of the stuff. In the shadows await some of the Big Money operations, run by Cargill, ADM and others, to potentially buy up--for nickels on the dollar, farmer-owned ethanol co-operatives that might sell out.

Some of these details are reported in today's front page New York Times coverage, "Ethanol's Boom Stalling As Glut Depresses Prices." The number of ethanol plants in the United States has shot up from 81 in early 2005, to 129 today, according to the Renewable Fuels Association. But now, many new orders for plants, and facilities under construction are on hold.

The Department of Agriculture has issued a new study of the situation, giving the understated warning of, "several supply chain issues that could inhibit growth in the ethanol industry." Among them, they cite the extreme shortage of rail tank cars. In early 2007, a backlog of rail tank car orders stood at 36,166 cars, way up from 10,000 in late 2005. (Because of corrosion and other factors, ethanol cannot be moved by pipeline).

In 2005, Congress mandated the consumption of 7.5 billion gallons a year of biofuels by 2012 (compared with 3.5 bil in 2004), but as of the end of 2007, the U.S. ethanol production capacity could already reach 7.8 billion gallons. But it can't get to where it can be used!

Then there is the price of corn itself, which accounts for perhaps 70% of the ethanol cost of production. Corn futures have doubled from under $2.00 a bushel a year ago, to over $3.60 today.