Rise in exports boosts confidence at Nebraska, Iowa ethanol plants

Source: By Russell Hubbard, Omaha World-Herald staff writer • Posted: Thursday, June 9, 2016

The link between the economies of Nebraska and Iowa and Brazil’s sugar cane harvest might not be clear at first glance, but it is there.

And it means some added prosperity, at least for producers of ethanol, a business worth $5 billion a year in Nebraska and as much as $20 billion in Iowa, by some reckonings.

Prices for the motor fuel have been inching upward, reaching a six-month high this week after months of some of the lowest prices in years.

The improved selling prices for ethanol producers have encouraged them to jump-start previously idled capacity at some of Iowa’s 42 ethanol plants and Nebraska’s 25, and have caused at least two startups of plants that had been shuttered.

Part of the reason? Burgeoning exports to countries thirsty for U.S. ethanol, always good news for Iowa and Nebraska, the nation’s top two producers. China and India have been big buyers, because they see ethanol as a clean-fuel alternative that is a tonic to their persistent air pollution problems.

Then there is Brazil. At first glance, it’s a curious candidate to be a buyer of Midwest ethanol made from corn.

The South American nation itself is the world’s second-largest producer of ethanol, behind the United States; the Brazilian motor fuel supply consists almost entirely of various blends of clear gas with high percentages of ethanol made exclusively from sugar cane. And Brazil is to sugar cane as Nebraska and Iowa are to corn.

But sugar cane is harvested for only about half of the year. Combine that with the occasional poor or delayed harvest, plus the low storage capacity of Brazil’s fuel depots, and you have everything you need to stimulate Brazilian buyers to start schlepping around Iowa and Nebraska ethanol plants.

“It’s true. They need it,” said Brian Cahill, chief executive of ethanol producer Southwest Iowa Renewable Energy, based in Council Bluffs.

And so do others. Overall, U.S. exports of ethanol totaled 96 million gallons in April, the latest period for which U.S. Agriculture Department statistics are available; that was the highest level since December 2011.

China bought 36 percent of the total. Brazil also has been a large buyer after recent sugar cane harvests fell 11 percent because of heavy rainfall.

The effect of it all on ethanol prices has been bracing. Prices have risen by more than a third, reaching a six-month high this week of $1.72 a gallon.

Also salutary for ethanol producers are dwindling stockpiles in storage terminals, as the summer driving season picks up. High inventories depress prices and discourage production; the U.S. Energy Information Administration said last week stocks fell to their lowest since December, and have dropped for four straight weeks, the longest such streak since October 2014.

So far, it hasn’t been too bad for motorists, whose pump price includes the clear gas as well as the ethanol that gets blended in, thanks to clean-air legislation enacted last decade.

Omaha pump prices, according to GasBuddy.com, have risen about 20 cents in the past month, to about $2.30 a gallon, but are still 37 cents lower than a year ago.

All inputs count, however, and if ethanol prices rise enough, drivers will pay more.

The ethanol price slump, which began in earnest last year, had wide-ranging effects on the industry, from bankruptcies to decimated stock prices at publicly traded producers such as Omaha-based Green Plains, operator of 14 ethanol plants nationwide.

Shares of Green Plains this week broke $20 for the first time since January and are up more than half from their six-month low in February of $12.96. The company cut production by about 20 percent in the first quarter, Chief Executive Todd Becker said.

Now, he said, “we are starting to ramp back up.”

Ethanol plants themselves don’t employ a lot of people. A big one needs only about 70 workers. But industry advocates say the ripple effect is large. Ethanol production yields byproducts such as corn oil and cattle feed, and there’s a value-added, research-and-development scene built around getting more energy from each kernel of corn.

Detractors say ethanol uses more energy than it creates, damages small engines, gets worse gas mileage and is the creation of government subsidy and market interference.

Nonetheless, Todd Sneller, administrator of the Nebraska Ethanol Board, said confidence is running high in the business. Nebraska plants in York and Ravenna operated by the Spanish company Abengoa — idled last year because of the price slump and connections this year to a corporate bankruptcy — are back in business. Hopes are that a buyer will be found to run the plants on an ongoing basis.

“It is a sign of stronger demand and better ethanol margins,” Sneller said of the restarts. Sneller said the worse-than-expected Brazilian sugar crop probably means “demand for ethanol from the U.S. could continue to grow in that market.”

At Southwest Iowa Renewable Energy in Council Bluffs, CEO Cahill has high hopes for higher ethanol blends at U.S. gas pumps, a trend ethanol opponents rue but which appears to be coming.

Major convenience store chains such as Kum & Go, based in West Des Moines, have said they plan major expansions this year into higher blends such as E15 and E85 — which are 15 and 85 percent ethanol, respectively.

“It is gradually going to add ethanol into the market,” said Cahill, who is to appear today in Kansas City at hearings conducted by the Environmental Protection Agency, which determines how much ethanol refiners must blend into gasoline each year.

Cahill and other ethanol producers are expected to favor higher amounts. That would make the recent boost in their fortunes longer lasting.

Last month, the EPA proposed requiring refineries to blend 18.8 billion gallons of corn-based ethanol and other biofuels into the nation’s gasoline supply next year. That is almost 700 million gallons more than the EPA requirement for this year but far less than the 24 billion gallons envisioned by the 2007 clean-air law.