Ethanol margins improve in past 3 months

By Susanne Retka Schill | June 18, 2013

An increase in ethanol prices in the past three months has moderated the impact of high corn prices and put the ethanol industry into positive margins again. A five-year analysis of industry profitability shows a high degree of variability in ethanol margins. University of Illinois ag economist Scott Irwin recently shared an updated look at the profitability of ethanol production in a FarmDocDaily post.

Since January 2007, ethanol margins net of variable and fixed costs have average 12 cents per bushel of corn processed, “but with enormous variability,” Irwin writes. After more than a year of deep negative margins in 2012 and through early 2013, the past three months have seen margins “averaging a healthy 37 cents per bushel,” he says. “This has largely been driven by a jump in ethanol prices during this time period.”  

Irwin based his analysis on an economic model of a 100 MMgy ethanol plant in Iowa that was recently updated to increase non-corn variable costs slightly, along with updating the values for other underlying assumptions. The biggest changes were to add corn oil revenue and netback (marketing) costs.

“After starting out the recent boom period with strong profits, ethanol plants have struggled to maintain profitability,” Irwin concludes.” It is not clear whether the recent 3 month period of positive margins will be maintained going forward. A case can be made for some optimism given the possibility of lower corn prices in the upcoming marketing year and pressures for increasing volumes of ethanol to meet the rising mandate for renewable fuels under the RFS. Another extended period of red ink like 2012 does not appear to be in the cards.”