Oppenheimer says US ethanol overcapacity will ease by fall; ethanol stocks jump

In New York, Oppenheimer & Co. analyst Joseph A. Gomes Jr. said that overcapacity in the ethanol sector will begin to ease in the fall. He said that “the difficult near-term operating environment resulting in limited upside to near-term operating results caused by rising corn prices and a glut of capacity supply. Corn prices are more difficult to get a handle on in terms of where they will go in the longer term.” Ethanol stocks were up sharply in Friday trading on the news.

Raymond James analyst Pavel Molchanov, in a recent note to clients, projected ethanol prices to average $2.42 and $2.48 per gallon in 2008 and 2009 respectively, while projecting corn costs at $5.48 and $5.45 per bushel. A “crush spread” of $0.46 per gallon in 2008 and $0.53 per gallon in 2008 is based upon a yield of 2.8 gallons per bushel. “Driven by constrained refining capacity and ethanol’s intrinsic advantages – as an octane enhancer, clean air additive, and valuable blend component – we project consistent growth in ethanol demand. On the negative side, high corn prices continue to weigh on profitability,” he wrote.

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