Drop In Corn Prices Increases Ethanol Profitability
Ethanol producers are finally seeing an increase in
their profits due to a decrease in the cost of corn. A large corn harvest
earlier this year tumbled the Chicago price of corn below three dollars per
bushel, giving the ethanol industry a reason to feel optimistic.
The
reduction in corn prices should be enough to push ethanol plants back "into the
black." When cash corn prices reached almost five dollars per bushel, ethanol
production dropped as low as 39,000 barrels per day. The actual ethanol fuel
price did not see a similar drop due to the increase in demand for ethanol for
the oxygenated fuel season, but models show that plant profits were still
stymied due to the manufacturing, marketing, and administrative expenses of
plant operations. Profits are seen when feedstock costs are significantly lower
than fixed costs.
Co-products such as distillers dried grains with
solubles and corn gluten feed, meal and oil did not see increases in their
prices like corn did earlier in the year, adding to the profitability squeeze
for ethanol producers.
An increase in the cost of these products would
keep the cost of cash corn prices from skyrocketing, helping producers maintain
ethanol profitability. Carroll Keim, an agri-business analyst and member of the
Oxy-Fuel News Advisory Board, suggested that the ethanol industry explore
how the industry can promote the use of these co-products. "Producers need to
investigate further the options for increasing the markets and value of ethanol
co- products. There is some work being done on projects such as distillers dried
grains for human consumption, but more is still needed."
The outlook for
the future is positive because corn prices are expected to remain below three
dollars per bushel. Even though co-product pricing remains a question for now,
the industry still might see an increase in the demand for ethanol from oil
companies. If prices remain low, ethanol blending for octane enhancement will be
revisited. This demand, along with stable corn prices, will surely continue to
keep ethanol production profitable.
Source: Oxy-Fuel News, November
11, 1996.
