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Tight margins drive search for efficiency

There’s plenty of anxiety in the ethanol world. The ethanol/corn crush margin dipped into the negative recently, although the last I saw, it was a few cents on the positive side again.
By Susanne Retka Schill | February 13, 2012

There’s plenty of anxiety in the ethanol world. The ethanol/corn crush margin dipped into the negative recently, although the last I saw, it was a few cents on the positive side again. From what I read, there was a lot of ethanol produced at year end to take advantage of the last days of the blenders credit. Also, the margins were quite favorable for a short time. Now, I’m reading more about large supplies of ethanol, pressuring the ethanol market and heightening concerns whether this is a sign of worse to come.

In recent market reporting, we learned that margins are generally tight for ethanol in the first quarter, improving as the year progresses. Part of the reason is that January typically has the lowest gasoline consumption of the year as consumers tend to stick closer to home in the winter. As summer approaches, more driving miles are chalked up and demand for ethanol blending increases.   

It certainly doesn’t help that the corn market is jittery. Last week’s supply/demand estimates from the USDA must have held few surprises, since it appears the market response was muted. Early guesses are already emerging in the trade that planting intentions will indicate near record corn acres for the next crop. If that proves true, it may take some of the pressure off the corn market, although the unpredictable weather we’ve been experiencing will no doubt bring some market drama.

The quarterly financial reports on the public ethanol producers are showing profits are still there. Now there’s talk of ethanol production levels being pulled back. It’s most efficient to keep plants running, although it seems the industry tries its best to time its regular maintenance shut downs for times like these when margins are tight. Another favorite time is in the summer when demand for distillers grains drops. Ethanol producers can also tweak the process some. When margins are good, parameters can be adjusted to increase throughput, and thus volumes. When margins are tight and corn costs are high, more emphasis can be put on maximizing the conversion rate getting more ethanol from a bushel of corn. It’s only a few slim percentage points, but that does add up when you’re talking 100 MMgy a year.

It certainly is a time when the ethanol industry is looking for ways to improve its efficiency on all fronts. I heard presentations at the last FEW that covered methods to improve ethanol yield – even 1 to 4 percent improvements can make a big difference on the bottom line. Of course, many of those yield improvements come with capital expense.