Ethanol remains the driving force behind the robust demand and prices in the corn market, but the industry that produces the fuel is undergoing some structural changes that bear watching.

“It’s an ethanol story — that’s the world we live in with feed prices,” says Mark Welch, economist with Texas A&M University.

Looking at supply and demand in the grain market, demand is strong and demand is high, he says. “Other factors are supporting what is happening in the grain market, but ethanol is the driver. It’s the big machine behind these current prices,” says Welch.

For this reason, he adds, it’s important to look at what’s happening in the structure and organization of the ethanol industry.

“We’re seeing a larger and larger percentage of ownership of ethanol production capacity by major oil companies,” he says. Current statistics peg that number at 10 percent, but Welch says that’s a “minimal” number in terms of what is going on behind the scenes with smaller percentages of ownership by the major companies of some plants.

If this trend continues, he says, it could completely change the structure of the ethanol industry. “Then we’d be talking about blending caps and how much ethanol we could move through the fuel supply,” says Welch. These kinds of structural changes could alter the industry, he says.

“Murphy Oil recently bid on a newly constructed plant in Hereford, Texas, that had been sold back to its creditors. That 100-million-gallon plant was built for $200 million and never ran for a day. Murphy Oil has stepped in and offered to buy the plant for $25 million — that’s 12.5 cents on the dollar. That’s changing the economics of running an ethanol plant. There’s a significant difference in cost structure going on,” he says.

The ethanol market, says Welch, is very important in continuing to support the demand characteristics currently being seen in the grain markets, says Welch.

Numbers from previous years show, he says, that grain use can go down during a recession. But in the current recession — which is the worst since the Great Depression — use has continued to climb, and biofuels have been a big factor.