With the crash of the ethanol industry, investors have seen a stunning reversal of a technology that seemed so profitable only a few quarters ago. Dozens of plants have been shuttered, and many more plants on the drawing board or in construction have been axed.

And the way the press spins it, ethanol will never be used again in the United States.

But that’s just wrong. Let’s not count this nascent industry out before it’s really had a chance to shine. Some of its biggest obstacles are centered on its major component: corn. The cost of corn plays a major part in squeezing profits – literally – from ethanol.

Just when the industry was starting to take off, the price of corn was skyrocketing. And many of the first movers like Verasun (OTC: VSUNQ) and Pacific Ethanol (Nasdaq: PEIX) got locked into pricey, long-term contracts. As prices for corn and fuel plummeted, they were left holding the bag.

Unlike many established commodities-based businesses, ethanol producers haven’t had the history to plan and prepare for the bad times. They don’t have decades-old strategies for locking in low corn prices and carefully hedging their bets. This will come in time to those who make it through the current “economic winter.” Unfortunately, many won’t.

But those that do survive will be well placed to control the industry. Lets not forget that ethanol producers cranked out over 18 million barrels (1 barrel = 31 gallons) of ethanol for the U.S. market in 2008.

If ethanol pioneers like Aventine Renewable (NYSE: AVR), BioFuel Energy Corp (Nasdaq: BIOF) and Green Plains Renewable Energy (Nasdaq: GPRE) can get their cost structure correct, these companies should profit nicely. Until that point, they might need some intensive care.

View original at: Investment Advice and Investment Research with a Contrarian Point of View

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