Corn Price Pressures Ethanol Margins

Source: By Todd Neeley, DTN Staff Reporterʥ Posted: Friday, January 15, 2021

Ethanol Prices Save Companies From Cratering Margins Amid Corn Price Spike

While rising corn prices hurt ethanol producers, higher ethanol prices are bolstering already struggling margins. (DTN file photo)
While rising corn prices hurt ethanol producers, higher ethanol prices are bolstering already struggling margins. (DTN file photo)

OMAHA (DTN) — Profit margins continued to fall at DTN’s hypothetical ethanol plant as soaring corn prices offset higher ethanol prices at the 50-million-gallon Neeley Biofuels plant.

The DTN National Corn Index has spiked from about $3.75 per bushel in early October to $4.99 on Wednesday. The March futures price on the Chicago Board of Trade — the price paid by DTN’s hypothetical plant — closed at $5.24 on Wednesday, jumping by about $1 since the middle of December.

As a result, the hypothetical plant reported a 37-cent net loss per gallon of ethanol produced in our January update. In the December update the plant reported a 35-cent loss.

Most ethanol plants are not paying debt. If the hypothetical plant were not paying debt, it would see a 6-cent-per-gallon loss compared to a 4-cent loss in December.

A jump in ethanol and distillers dried grains prices in this update prevented margins from cratering.

For this update, Neeley Biofuels received $1.62 per gallon for its ethanol on the rack price — a 25-cent spike since our December update. In addition, the plant received $205 per ton for DDG — a $15 increase from our December update.

DTN Cash Grains Analyst Mary Kennedy said while the U.S. Energy Information Administration on Wednesday showed a slight increase in plant production last week, ethanol production still is running 14% behind the same time last year.

“Some plants continue to struggle with the higher cash corn prices along with the latest EIA report showing as of the week ending Jan. 8,” she said.

“Blending activity, a measure of demand, was slightly higher, but down 12.4% from the same week in 2020 and neither of those scenarios is good for overall plant margins. The DTN National Corn Index during just the first 13 days of 2021 has gained 39 cents.”

Last spring, during the beginning of the COVID-19 economic shutdown, ethanol margins were at some of their lowest levels in history.

DTN established Neeley Biofuels in DTN’s ProphetX Ethanol Edition to track ethanol industry profitability. Using the real-time commodity price data that flows into the “corn crush” in ProphetX, and some industry-average figures for interest costs, labor and overhead, DTN is able to track current profits. It also tracks how much Neeley Biofuels would make or lose under an infinite number of “what-if” scenarios.

DTN uses industry-average figures from Iowa State University. Included in the figures are annual labor and management costs, transportation costs, debt-servicing costs, depreciation and maintenance costs. Although Neeley Biofuels is paying debt-service and depreciation costs on its plant, many real plants are not in debt.

Also, it should be noted the calculations include all other costs, such as chemicals and yeasts, electricity, denaturant and water. While DTN uses natural gas spot prices for these updates, many ethanol plants lock in prices on the futures market, so they are not as vulnerable to natural gas market volatility.

Todd Neeley can be reached at todd.neeley@dtn.com

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