The ethanol business is very cyclical as the markets become even more volatile for inputs (corn, natural gas,etc.) and the outputs (ethanol,DDGS, corn oil,etc.) all move up and down in price. The main reason the ethanol plants are nearly all reporting losses for this past quarter is due to the end of the blender's credit at the end of the year which caused a big boost in demand for ethanol before the end of the year. This resulted in less demand after the first of the year and then couple that with a drop in oil prices(gas prices) and the margins have become very tight. Then because of the lower gas prices the ethanol market has fallen as well, which has caused the price of corn to fall, but alot of the corn an ethanol plant is using today was contracted with the farmer for future delivery at a much higher price than today's market and thus results in a loss for the bottom line unless the plant is extremely good at managing their risk.
All of these effects on the profitability of the ethanol industry will work itself out in the next quarter or two and the impact on the COES part of the business will be to encourage an even faster adoption of the most efficient system in the market place(GERS)!
At some point, those plants that are infringing on GERS patents will realise that they made a poor business decision regardless of the savings avoiding the royalty payments as GERS systems are proving that the royalty is a small cost related to the returns an ethanol plant receives once the systems are up and running.
I just filled my pickup yesterday with E85 price at $2.74 per gallon versus the E10 at $3.39. If the price at the pump stays with that kind of spread the sales of E85 will increase rapidly as the drop in fuel efficiency is only about 15% for my pickup anyway. Wish I could find more blender pumps as my fuel efficiency is nearly the same when I put in a 50/50 blend as the E10. I did put E30 in my 1997 Buick a couple times and the car ran great, but the fuel efficiency did drop about 10%.
Anyway, back to your argument, I disagree and think that the COES will not be affected negatively by ethanol plants recent losses other than the loss of production if some ethanol plants temporarily slow down, emphasis on temporary. As long as they cover their variabe costs and part of their fixed costs, they will only cut back to their name plate production levels rather than run the 10 to 15% above nameplate that most are able to do today. They also need to shut down sometime during the year for a short time frame to do maintenance that is necessary and will use this opportunity to do that as well during this time, so that when the fundamentals change and ethanol prices go up along with gas prices they will be able to take advantage of that opportunity
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