 This piece is taken directly out of a 185 page report from the DOE
"The feedstocks used to produce biofuels currently make up only 15 percent of available crop matter and are located at the end of a long agricultural supply chain. The markets for biofuels, biofuel co-products (e.g., animal feed, corn oil and meal), and crop commodities are linked and susceptible to changes in the prices and availability of crops. Surging demand for biofuel feedstocks is likely to continue to exert upward price pressure on corn and soybean commodities and influence export, food, and industrial feedstock markets, particularly in the short term [EIA AEO 2007].
These trends further emphasize the need for production of biofuels from more diverse sources such as cellulosic biomass. To successfully penetrate the market, however, the minimum profitable cellulosic ethanol price must be cost-competitive with corn ethanol and low enough to compete with gasoline. A minimum profitable ethanol selling price of $2.50/gallon can compete on an energy-adjusted basis with gasoline derived from oil costing $75-$80/barrel. At the lower oil prices ($45 - $50/bbl) predicted by EIA through 2017 [EIA Annual Energy Outlook 2007], cellulosic technology may not be as competitive and could require policy supports and regulatory mandates to drive the market. The cellulosic ethanol conversion market is currently precommercial, with no stand-alone plants in operation. A number of smaller firms, both public and private, are competing to commercialize cellulosic technologies based on a variety of feedstocks.
The current grain ethanol industry, which accounts for most biofuels sales, is comprised generally of smaller firms. The two largest companies, Archer Daniels Midland and Poet, together control about 2.2 billion gallon of current capacity, about 30% of the market. Ten additional companies control the next 30%, and the remainder is comprised of small companies with less than 100 mgy capacity.9 Rising costs of feedstock inputs are generally expected to drive consolidation in the industry, favoring firms with strong balance sheets.
The perceived high growth potential of ethanol has benefited ethanol producers as well as other companies which have announced plans to produce ethanol in the future or are related to corn in some way. Farm equipment stocks and rail stocks may be beneficiaries of future increased ethanol and biofuels investment. Ethanol investment has spilled over to corn commodity trading, as some brokers believe that ethanol will help corn futures.
Limited rail and truck capacity has complicated the delivery of ethanol, contributing to regional ethanol supply shortages and price spikes. Feedstock and product transportation costs and concerns remain problematic for the biofuel industry and have led many biofuel producers to explore the prospect of locating near a dedicated feedstock supply or large demand center to minimize transportation costs and susceptibility to bottlenecks."
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