ConAgra withdraws plans for ethanol plant

NEW YORK Wed Jan 23, 2008 12:37pm EST

Raw corn is shown as it is unloaded for processing at the Lincolnway Energy plant in the town of Nevada, Iowa, December 6, 2007. REUTERS/Jason Reed

Raw corn is shown as it is unloaded for processing at the Lincolnway Energy plant in the town of Nevada, Iowa, December 6, 2007.

Credit: Reuters/Jason Reed

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NEW YORK (Reuters) - ConAgra Foods, said on Wednesday high costs have forced it to withdraw an application to build an ethanol plant in New Mexico, in the latest sign of difficulties for producers of the alternative fuel.

"We made a decision to withdraw our air permit application because of the increased costs for building and operating an ethanol plant in Clovis, New Mexico," spokeswoman Stephanie Childs said in a phone interview.

The Clovis plant would have produced more than 100 million gallons per year of ethanol made from corn.

U.S. ethanol capacity has risen 45 percent since last year as the government offers millions of dollars in incentives to make domestic fuel.

But, as costs have risen, several companies have begun to cancel or delay plans to built plants. Late last year at least four companies, including Pacific Ethanol Inc, said they were suspending plans to build distilleries.

Average U.S. profit margins for making ethanol hit a low in October, when many distilleries were operating in the red.

Margins have since recovered, but many players say profits will be tough for the next two years as it takes time to build or expand terminals to transport the fuel to cities.

Childs said current costs of finding water sources to run the New Mexico plant and construction materials were much higher than when the company first began the application process more than two years ago.

Corn costs have also spiked, trading at nearly $5 per bushel.

ConAgra had planned to be a minority stakeholder in the plant, with The Carlyle Group, which makes energy investments with partner Riverstone Holdings, taking a majority stake.

(Reporting by Timothy Gardner; Editing by Walter Bagley)

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