Report shows ethanol revenue resurgence in first half of 2013

By Holly Jessen | October 17, 2013

After the drought of 2012, ethanol producers saw a strong increase in grind margins, better ethanol netbacks and decreased feedstock costs in the first two quarters of 2013. The data was reported as part of the Christianson & Associates PLLP Biofuels Benchmarking Annual Industry Report, which includes information compiled from 52 participating ethanol plants.

“This year’s report focuses on data and analysis of the four most recent calendar quarters, from July 1, 2012, through June 30, 2013,” John Christianson, CPA Partner for the Minnesota-based company, said in the report. “We’ll recap the lessons learned from the tight margins of 2012, and gain insight into what’s to come in the remainder of a thus-far profitable 2013.”

The company has been gathering benchmarking data and sharing it with participating ethanol plants since 2003. In 2010, the first benchmarking report was released to a larger audience, which included data from 63 participating ethanol plants. Although the number of participating ethanol plants dipped slightly in the most recent report, the average capacity of participating plants was 75 MMgy, up from the about 65 MMgy to nearly 70 MMgy total production represented in the reports from 2010 to 2012.

The report reveals a couple of interesting points looking at the coproduct production breakdown from 2010 to the current period. Starting out in 2010, about 52 percent of plants produced primary dried distillers grains with soluables. That number rose to 67.31 percent in the current period. The number of ethanol plants producing additional coproducts increased as well, with only about 44 percent of ethanol plants extracting corn oil in 2010 and about 67 percent extracting corn oil for the current period. Ethanol plants that capture carbon dioxide grew from only 19 percent in 2010 to more than 36 percent. “As ethanol prices and corn prices continue to track very closely relative to each other, plants remain profitable by aggressively seeking out revenue streams in addition to ethanol netback,” the report said.

Looking at the second half of 2012, the data shows that ethanol producers worked to reduce controllable but small costs, such as ingredients and labor, in an effort to reach for profitability. By the first half of 2013 there was a strong grind margin resurgence.  “The return of lower corn prices and higher ethanol prices allowed for a rebound in profitability in the first half of 2013,” the report said.

The report also revealed two grind margin trends for 2012 and in early 2013. First, coproduct sales are continuing to be more important for plant grind revenue, accounting for 25 percent of the total for the most recent benchmarking report. Secondly, feedstock costs now account for 94 percent of grind expense, a trend expected to continue with low energy prices and high feedstock costs remain in place. “However, the previously emergent trend for average feedstock costs per production gallon to actually exceed average ethanol netback per gallon, has nearly reversed itself, thus returning to making ethanol more profitable as a standalone product,” the report said.

The corn coming out of the 2012 drought did result in lowered ethanol yields. Ethanol plant leaders had yields of 2.79 gallons per bushel of corn, while the industry average is about 2.72 gallons per bushel. The laggards, or the lowest performing 25 percent of participating ethanol plants, averages only slightly less at about 2.65 gallons per bushel, illustrating that the standard deviation in yield is very small. “Small changes in yield to bring a plant from laggard to leader status can mean an increase in revenue per quarter of over $1.7 million, the difference between a profitable year and an unprofitable one, particularly in today’s tight-margin environment,” the report said.