Good News for Ethanol as Corn Dips and Pipeline Test a Success

by: Konrad Imielinski

Corn prices settled below the $4 mark Wednesday for the first time since last October. December corn, the front-month contract, fell 23 1/4 cents to $3.88 per bushel. In the past month, corn prices have fallen $1.74 (31%) due to the rapid decline in both crude oil prices and the stock market. Luckily for U.S. ethanol producers, ethanol prices haven't been hit as badly as ethanol's crush spread has improved:

(what do I mean by ethanol's crush spread?)

Last month I mentioned that Kinder Morgan Energy Partners (NYSE:KMP) plans to run a test batch of ethanol through its 105-mile long underground gasoline pipeline and, if successful, the pipeline could transport ethanol on a commercial scale by year's end.

Well, the results are in and the test ended up being a success. Kinder Morgan spent 18 months on the ethanol pipeline test as it made more than $10 million in upgrades. The upgrades consisted of replacing "a number of parts, including seals, gaskets and other components" and cleaning "the pipeline with a device called a "pig" that ran through the line and scoured the interior with brushes and chemicals." Kinder Morgan still has to make some more modifications, however, it expects to be transporting ethanol for customers by mid-November. If you put things in perspective, spending $10 million is miniscule in comparison to the $1 million per-mile price we would have to pay if we were to construct a separate pipeline strictly for ethanol.

Stock position: None.