Demand and supply in the ethanol market

Ethanol's boom stalling as glut depresses price:

The ethanol boom of recent years — which spurred a frenzy of distillery construction, record corn prices, rising food prices and hopes of a new future for rural America — may be fading.

Only last year, farmers here spoke of a biofuel gold rush, and they rejoiced as prices for ethanol and the corn used to produce it set records.

But companies and farm cooperatives have built so many distilleries so quickly that the ethanol market is suddenly plagued by a glut, in part because the means to distribute it have not kept pace. The average national ethanol price on the spot market has plunged 30 percent since May, with the decline escalating sharply in the last few weeks.

Shift your demand curve to the right and watch equilibrium price and quantity rise. Then, push your supply curve to the right far enough so that price falls (by 30%).

Comments

[Prasad Rao]

"Shift your demand curve to the right and watch equilibrium price and quantity rise. Then, push your supply curve to the right far enough so that price falls (by 30%)."

and don't forget to cash in on the Wheat - Ethanol arbitrage on the spot/futures market (while politicians utter pious words of policy in favor of one or the other)!