Exports help Iowa ethanol reach record output in ’11

Source: DAN PILLER • Des Moines Register  • Posted: Friday, December 23, 2011

Production at Iowa’s 41 ethanol plants increased by about 200 million gallons this year over 2010 to a record 3.7 billion gallons, but not because of domestic demand.

“2011 was certainly a good year for Iowa ethanol producers with increased production and profitability,” said Monte Shaw, executive director of the Iowa Renewable Fuels Association. “However, we relied on export markets for growth.”

Domestic demand for ethanol has been flat because the industry bumped against the so-called blend wall mandate of 10 percent of total U.S. gasoline production sometime in mid-2011. Total U.S. production for 2011 is estimated at 13.8 billion gallons.

Required use of ethanol under the federal Renewable Fuel Standards Act will rise from 12.6 billion gallons in 2011 to 13.2 billion gallons next year.

Foreign sales of U.S. ethanol have added an additional 1 billion gallons of production this year, spurred by strong sales in Brazil, where a shortfall in the sugar cane crop caused that nation to turn to imports for domestic use.

Shaw said about 1.34 billion bushels of corn, about 62 percent of Iowa’s 2010 corn harvest, were used to make the 3.7 billion gallons of ethanol produced in Iowa.

He noted that Iowa’s ethanol plants produced 11.5 million tons, or about 448 million bushels, of dried distillers grains that are sold for cattle feed.

The need for exports and dried distillers grain sales may be more pronounced for ethanol producers in 2012 as profit margins, which have been comfortable in the second half of this year, are expected to narrow with the ending of the 45-cent-per-gallon tax credit for ethanol blending.

“Margins have been very good lately, but we’re expecting a drop early next year,” Shaw said.

The return to a producer for a gallon of ethanol improved this year from a loss of 9 cents in February to a profit margin of 3 cents in April to as much as 70 cents per gallon last month as corn prices dropped by about 25 percent, Iowa State University figures show.

The removal of the blenders’ credit has pared the wholesale futures price of ethanol from $2.50 per gallon this month to $2.16 per gallon on the futures board for January delivery. The credit went not to the ethanol plants but to petroleum refiners or gasoline pipelines or distributors.

Shaw said the blend wall made the development of the 15 percent ethanol blend more imperative. The U.S. Environmental Protection Agency approved the blend, but the ethanol industry is still waiting for the government to complete its rules and standards on fuel tanks and dispensers.

“Higher blends like E15 are the only way to guarantee increased ethanol production in the future and the jobs and foreign oil displacement that comes with it. We are waiting for final federal approvals, but Iowa will be a leader in E15,” Shaw said.