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By: Jeff Cox, , Special to CNBC | 25 Apr 2008 | 12:37 PM ET
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These aren't happy times for the ethanol industry.

First, there's the public relations problem.

ETHANOL
Charlie Neibergall / AP
Fields of corn surround the Golden Grain Energy ethanol plant, in Mason City, Iowa. The ethanol industry is pushing forward, despite an increasingly loud chorus of disapproval. (AP Photo/Charlie Neibergall)

Corn-based ethanol has become the favorite whipping boy for people concerned about global food shortages and soaring costs for wheat, beans, rice and other food products.

Demand for corn has driven up the price of the crop to three times levels of just two years ago, pushing up not just corn itself but the myriad byproducts that come from its kernels.

Then, there's the economic problem.

Under current technology, corn ethanol is inefficient and costly to make, requiring steep investments in energy, money and natural resources. In fact, the energy used to produce ethanol and transport it from plant to marketplace—in either tractor-trailers or freight cars that run on hyper-expensive diesel fuel—is about equal or perhaps even exceeds the power within the very ethanol itself. And an average-sized ethanol power production plant requires about 400,000 gallons of water a day to operate.

Plus, ethanol fails to give consumers any breaks at the gas pump.

A gallon of regular unleaded gas costs about $3.57, while a gallon of E85 ethanol blend (85 percent ethanol) goes for $2.93. However, the adjusted price for ethanol when taking into account the fuel's lower miles-per-gallon efficiency compared to gasoline is about $3.86, according to AAA.

And then there's the issue of trying to find a station, especially in the Northeast of the United States, that actually carries E85. About 40 states have fewer than 10 E85 stations.

All in all, things could be better for those who believed in an industry that they thought would boom over the next several years.

"While it may not be the immediate death of ethanol, certainly it's been handed its hat," says Kevin Kerr, editor of online commodity newsletter Resource Trader Alert. "I would say that this is probably the peak for corn-based ethanol politically and financially."

Stock prices for many ethanol manufacturers have been under pressure this year, though it's mainly the smaller producers that have suffered.

Archer Daniels Midland [ADM  Loading...      ()   ], the largest ethanol producer, has seen its shares gain marginally in 2008 and nearly 15 percent over the past year. ADM, of course, is a highly diversified company that doesn't rely on ethanol as the core of its business.

But other companies that focus mainly on ethanol production haven't been as fortunate.

VeraSun Energy [VSE  Loading...      ()   ] has seen its stock tumble 56 percent in 2008. BioFuel Energy [BIOF  Loading...      ()   ] is off 41 percent. And Pacific Ethanol [PEIX  Loading...      ()   ], in which Microsoft [MSFT  Loading...      ()   ] founder Bill Gates holds a 25 percent stake, has plummeted nearly 60 percent.

At the same time, the public's loss of favor toward corn-based ethanol doesn't bode well for the industry as it approaches the inevitable loss of one of its biggest advocates—President Bush—and faces the uncertainty of the next administration. Last year Bush signed the Renewable Fuels Standard into law, which dictates the production of 36 billion gallons of ethanol by 2012.

None of the three remaining presidential candidates has expressed much fondness for corn ethanol, and there is speculation that the new president will revisit how much alternative energy will come from corn ethanol.

"Corn-based ethanol will be another disaster for the Bush administration," Kerr says. "The new administration will be able to come to the rescue with things that are more practical."

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