Prices giving positive ethanol margins, negative for corn farmers

Market conditions in mid-March indicated ethanol producers could pay about 10 percent more than the current cash corn price before reaching the plant “shut-down level,” according to an analysis by retired Iowa State University economist Robert Wisner. He wrote about the “Impact of Low Ethanol Prices on the Corn Market” in the most recent AgMarketing Resource Center Renewable Fuels Monthly Report. The maximum prices ethanol processors could pay, however, “are not high enough to cover typical old and new-crop break-even prices for corn producers.”

Wisner defined the shut-down price as “the level where a higher corn price would not allow the plant to cover its variable costs and it would be less costly to close the plant temporarily than to operate.” Using Iowa-based prices and plant modeling, “the corn shut-down price using actual DDGS prices is $4.19 per bushel,” he wrote. “That’s approximately 10 percent above actual mid-March cash prices.” Fixed costs in the AgMRC model ethanol plant in late February were 59.8 cents per bushel, which, he added, can vary greatly from plant to plant.

Wisner included the accompanying table to show values from the USDA Agricultural Marketing Service weekly reports on Iowa-based cash prices plus the AgMRC modeling of variable and fixed ethanol costs and ISU calculations for corn production costs. The table compares 2015 values with 2014 values for the same time period.  

As farmers finalize their 2015 cropping plans, Wisner said, “the impact of low ethanol prices on the corn market becomes critically important to their decisions.” Harvest-delivery corn bids in north central Iowa in late March, at $3.75 per bushel, are low enough with current ethanol and DDGS prices so ethanol plants can operate, he added, but farmers are likely to face losses at those prices, unless they have above-average yields.

Wisner also regularly updates a balance sheet showing ethanol usage projections and corn supply/use, give low, medium and high projections for corn supply and use, ethanol and DDGS project, carryover and prices. The U.S. weighted average farm price for corn ranges from $5.25 per bushel in the low estimate projection to $4.30 in the medium and $4 per bushel in the high projection column.