FTC: US ethanol industry remains unconcentrated

By Erin Voegele | December 09, 2016

The Federal Trade Commission recently issued its 2016 Report on Ethanol Market Concentration. As in previous years, the report concludes that U.S. ethanol production remains unconcentrated. The FTC concluded “the low level of concentration and large number of market participants in the U.S. ethanol production industry continue to suggest that the exercise of market power to set prices, or coordination on price and output levels, is unlikely.”

The FTC is required to issue the annual report by the Energy Policy Act of 2005. The analysis aims to determining whether there is sufficient competition among industry participants to avoid price setting and other anticompetitive behavior.

When compared to 2005, the most recent report shows the ethanol industry is less concentrated. The FTC also noted that the availability of ethanol imports provides additional constraints on the exercise of market power by current industry participants.

According to the report, the level of concentration in the U.S. ethanol industry is substantially unchanged when compared to last year. More than 100 firms currently produce, or are capable of producing, ethanol. The largest ethanol producer’s share of domestic capacity is approximately 11 percent, unchanged from its share in 2015.

Regarding margins, the analysis states margins through the first nine months of 2016 followed a seasonality pattern similar to that seen in 2015. Margins were negative or low in January, but increased and remained positive during the spring and summer driving season as demand surged. The average margin for the first nine months of 2016 was 20 cents per gallon with the average net cost of corn at 82 cents per gallon over the same time period. While ethanol prices fluctuated slightly throughout the year, the FTC determined they remained close to 2015 prices, with an average price of $1.40 per gallon.

From July 2015 through June 2106, ethanol production was up 3 percent when compared to the prior 12 months, increasing from 14.6 billion gallons to 15 billion gallons. Production capacity, including capacity under construction, increased to 15.8 billion gallons per year. The FTC noted this marks the third consecutive year capacity has increased. The report also states that from July 2015 through June 2016, ethanol exports remained largely unchanged from the previous year at 854 million gallons.

A full copy of the report can be downloaded from the FTC website.