The massive flooding in the Corn Belt has taken its toll both on the corn crop and on ethanol producer’s margins, spurring expectations of significant production cutbacks and delays for new plants coming on line.

VeraSun Energy Corp, one of the leading U.S. ethanol producers, said on Monday it is delaying the opening of two Midwest ethanol distilleries until market conditions improve.

U.S. Midwest spot ethanol prices jumped about 10 cents on Monday, extending a steep climb that began last week due to the flooding in the Corn Belt, but remain low relative to corn prices.

According to Dow Jones News Service, Citigroup analyst David Driscoll wrote in a research note that ethanol margins have "plummeted" over the last 12 days and "small and mid size ethanol producers now running at substantial losses against cash costs."

Just two weeks ago, Driscoll said, margins were at breakeven, but now spot cash margins for small to midsize ethanol producers are at a loss of 45 cents/gal.

"As a result of the rapid margin deterioration we believe that many, if not all, of the small to midsize producers will be forced to shut down over the next few months with a total potential reduction in ethanol production at 2-5 billion gallons per year," he said.

In the note, he continues, saying that "five mid to small ethanol plants have gone offline" and Citi believes this only represents the top of the iceberg.

The delayed VeraSun plants, each scheduled to produce 110 million gallons per year and previously projected to come on line during the second quarter, are located in Welcome, Minnesota, and Hartley, Iowa.

VeraSun spokesman Michael Lockrem said record corn prices and comparatively low ethanol prices, compared to spikes in gasoline prices, have made producing ethanol difficult.

“The combination of those two things just don't warrant the start-up of those two facilities at this time," he said.

The decision had nothing to do with floods that have ravaged the corn crop across the Midwest, spiking corn prices above $7/bu., Lockrem said.

The company still plans to open three other ethanol distilleries by the end of this year in Iowa, Minnesota and North Dakota.