Ethanol struggles in the red

Source: by Dan Piller, Des Moines Register • Posted: Wednesday, March 28, 2012

Flint Hills Resources plant near Menlo is one of 41 in Iowa

Ethanol producers spent the first two months of 2012 bathed in red ink as the commodity price for ethanol fell despite rising gasoline prices.

Figures from Iowa State University show an average negative margin of 16 cents per gallon in February after a similar deficit of 11 cents per gallon in January.

The January-February figures followed the expiration of ethanol’s 45-cents per gallon tax break, which went to refiners and other blenders. It also ended a six-month period beginning in July of last year when ethanol’s profit margins averaged 36 cents per gallon.

“These are lean times now, but we’ve seen it before,” said Monte Shaw, executive director of the Iowa Renewable Fuels Association, the trade group for Iowa’s 41 ethanol plants that in 2011 produced a nation-leading 3.7 billion gallons of ethanol, about 30 percent of total U.S. production.

The wholesale price of ethanol fell from about $2.75 per gallon in late 2011 to little more than $2 per gallon in January. While ethanol prices have edged up to the $2.28 per gallon it closed Monday on the futures market, that price is more than $1 below the wholesale unleaded gasoline price of $3.39 per gallon Monday on the New York Mercantile Exchange.

Ethanol producers have preferred that their product sell for about 40-45 cents per gallon below the wholesale gasoline price, so as to provide some economic incentive for oil companies to blend ethanol.

The falling ethanol prices occurred despite corn prices that have remained about$6 per bushel for the first quarter of this year. Corn closed Monday at $6.37.

Shaw said the industry badly needs a full switch to the 15 percent blend of ethanol approved a year ago by federal regulators, which has been delayed the red tape. The latest holdup is the necessity for each retail station to send for approval a “plan to prevent misfueling” to regulators.

“We hope to be able to get 20-30 pumps with E15 in Iowa in the near term,” said Shaw. Iowa has about 3,000 gasoline outlets.