The problem is the DEMAND for Ethanol. Big Oil is bidding the price up (and if I were REALLY cynical, I'd think this is a consipiracy to price Ethanol out of the market and to force the hands of those states who have outlawed MTBE, which is a known carcinagen).
The assumptions you've made would be correct under ordinary circumstances. Unfortunately these are not ordinary times.
Similar things will occur when domestic hydrogen automobiles are introduced.
Big Oil companies had a 19% increase in profits last quarter, they intend to keep it that way. The easiest way is to force Ethanol out of the competition and to create ill will against Ethanol at the same time.
Gas companies pay a royalty to ARCO for MTBE - that lawsuite cost us at the pump years back - now that MTBE is being taken out, we should have a reduction in gas because that fee is no longer paid for that additive.
Isn't it simply that the wholesale price of ethanol is higher than the wholesale price of gasoline? So when you add it to gasoline the price increases.
Everyone is taking for granted that ethanol must be cheap, which is not the case.
If I earned 5% on my investment, and it increased 50%, my return would be 7.5%.
What was their return on sales revenue? 9.5%. Now look at other industry's returns on sales revenues.