Analysts forecast $5.00 corn, ethanol producer shakeout in 2008; ADM expected to avoid distress acquisitions

In New York, energy analysts at Piper Jaffray raised the possibility of a looming ethanol shakeout, as Friedman, Billings, Ramsey & Co projected an increase in corn prices from $3.75 to $5.00 per bushel. Analysts suggested that the ethanol squeeze could be felt for two years while the industry installs ethanol pipelines to bring the product to the Southwest. Reports circulated that Archer Daniels Midland would not step into the market and snatch up the smaller players, hoping that liquidations would ease the pressure on corn prices and ethanol margins.

Recently, prominent biofuels investor Sano Shimoda of BioScience Securities said that he foresees a shakeout in the ethanol industry, and more consolidation as single plants are either consolidated, fail, or emerge as low-cost producers. He said that the ethanol industry had to urgently reduce costs to be able to survive without subsidies.

At the Chicago Board of Trade, wheat traded last week at an all-time high of $12 per bushel, surging more than 25 percent after Kazakhstan announced it would impose export tariffs to reduce exports after consumer prices for wheat rose more than 20 percent in 2007. Wheat reserves are expected to fall to 109 million bushels, the lowest figures since the 1970s. Spring wheat rose to more than $24 per bushel, while ethanol corn use is expected to increase by 28 percent to 4.1 million bushels, pushing corn futures fro the May contract to $5.5275 a bushel.

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