Ethanol's Long Joyride Runs Out of Gas

After 15 years of growth, ethanol production will fall this year and be flat next year, shocking an industry that has only known boom times for many years, reports the Wall Street Journal. Driven by government mandates, production of the corn-based fuel additive tripled from 2005 to 2011, reaching nearly 14 million gallons last year (about 40% of US corn production) and pushing up corn prices in the process. But with gas demand 6.7% below its 2007 peak and ethanol use at its government-required limits, US capacity is outstripping demand.

Although agricultural states are generally weathering the tough economic climate these days better than other states, the closing of many ethanol plants and slacking demand is hurting many corn communities. Ethanol actually overcame another economic bump back in 2008, when surging corn prices hurt profitability and caused many plants to close. But this time declining fuel consumption nationwide is hurting ethanol even more. "A lot of people are rethinking their assumptions on the ethanol industry and the potential size," said one economist. (More ethanol stories.)