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The ethanol industry has had a profitable year despite the jump in corn prices, but the industry faces a slew of headwinds, including overcapacity and political pressure to cut generous incentives.

“We have a lot of customers who are ethanol investors and plants have been very diligent paying down debt in 2011,” says Jason Ward, director of grain and energy for Northstar Commodity. “Kudos to them, but there is definitely some rough waters ahead for the ethanol sector.”

One concern is the December expiration of the 45-cent-per-gallon tax credit the industry gets for blending ethanolinto gasoline, at a cost to taxpayers of about $6 billion a year. A 54-cent-per-gallon excise tax on imported ethanol is also set to expire at the end of the year.

But Ward and other analysts say the industry may be ready for elimination of these tax subsidies.

“This will make ethanol stand on its own, something I believe the industry is prepared to do,” he says. “It is my belief that blenders will continue to blend ethanol at the same volume because it simply makes their gasoline cheaper and they need an additive.”

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