Year ahead holds questions for ethanol

Source: By Lori Potter, Kearney Hub Staff Writer • Posted: Tuesday, February 24, 2015

MINDEN — Many ethanol plant balance sheets were repaired in 2014, but predictions for 2015 and beyond by KAAPA Ethanol Chief Executive Officer Chuck Woodside are prefaced with “it depends.”

Woodside, who is a past president of the national Renewable Fuels Association, said, “We’re coming off a phenomenal 2014, and the industry as a whole did well.”

Some people might look at the low market prices for corn, the raw product for most U.S. ethanol, and think doing well was inevitable.

“When we first started, a lot of people said, ‘Boy, if corn goes to $7 (per bushel), you’ll go out of business,’” Woodside said with a laugh, pointing out that KAAPA Ethanol has grown from a 40 million-gallons-per-year plant to 60 million gallons and survived $8 or higher corn prices in recent years.

Still, variability in corn prices have made the plant’s earnings “incredibly volatile” in recent years.

Woodside said profitability is complex because it depends on balances between the prices for corn, its co-product of distillers grains and oil.

“It depends on how low they (oil prices) go and how long they stay there,” he said, explaining that low prices could spark more demand for gasoline and biofuels.

However, producers of biofuels can take advantage of that only if more pumps are installed that offer higher ethanol blends such as E15 and E85 in addition to the common 10 percent.

Other factors include foreign demand for U.S. ethanol and distillers grains, especially in China and in Brazil, where 25 percent of all gasoline must have a minimum of 25 percent ethanol; uncertainty created by the federal Environmental Protection Agency’s talk of rolling back the renewable fuel standard; and, always, pushback by oil companies.

Woodside said exports were strong in 2014, with 800 million gallons of U.S. ethanol sold overseas.

Another boost to the processing margin were low prices for the two main input costs, corn and natural gas.

Although KAAPA Ethanol sells tons of wet distillers grains to area livestock producers, the plant still gets most of its revenue from ethanol, Woodside said, all of which is shipped by rail to California.

He said transportation logistics issues have improved since early 2014 but weren’t fully resolved by the end of the year.

“The price of diesel has not fallen commensurate with the price of oil,” Woodside added, which affects costs for ethanol plants and all businesses using trucks and railroads to move commodities.

Woodside said ethanol demand was good enough to allow some plants to restart in 2014.

That includes two at Aurora recently acquired by Pacific Ethanol in a merger agreement with Aventine. Those plants, one older but not operating and one new, have an annual combined production capacity of 155 million gallons.

“There are a lot of things yet to be determined about 2015,” Woodside said, including whether the low fuel prices will cause people to drive more and raise demand for oil and ethanol.

However, some retailers continue to price E85 higher than E10, which he said doesn’t reflect the market for biofuels. Also, it still is very difficult to get more E15 pumps installed, especially with uncertainty with the renewable fuel standard.

“Think about the economic impact of low gas prices. Ethanol has been bringing down the price of gas for years … plus we have all the environmental benefits,” Woodside said.

Maintaining the renewable fuels standard is critical to maintaining choices at the pump for consumers.

“It is an access thing. It is a mandate for oil,” Woodside said. Without that mandate, he believes big oil companies will fill the ethanol gap with regular gasoline.

“It’s interesting how oil’s message will change. It was not that ethanol was bringing down the price of fuel (in the past). But now they’re saying the extra supplies of U.S. oil is doing that,” Woodside said.

EPA officials took comments on a possible rollback of the standard and then pushed the decision into 2015. Woodside said there is uncertainty about whether Congress or the EPA has authority over the issue.

Although there have been many attempts in Congress over the years to change the renewable fuel standard, he doesn’t know if there will be a similar effort in 2015.

It is clear that demand for ethanol greatly affects Nebraska’s No. 1 industry — agriculture.

“If not for the demand for corn by the ethanol industry, I’d hate to guess where we’d be in corn pricing today,” Woodside said.

Both corn farmers and ethanol processors are producing beyond U.S. demand.

Reports released Jan. 12 by the U.S. Department of Agriculture’s National Agricultural Statistics Service estimated a record 14.2 billion bushels of corn harvested in 2014. Meanwhile, there were 11.2 billion bushels in on-farm and off-farm storage as of Dec. 1.

Nebraska farmers produced an estimated 1.6 billion bushels of corn for grain in 2014, and 1.29 billion bushels were in storage on Dec. 1.

Woodside said it will be interesting to see how those numbers and market prices affect farmers’ 2015 planting decisions.

The response in 2014 was to plant more soybeans. However, Woodside said he’s heard that the South American soybean harvest could be big, which would affect soybean prices.

“Nothing cures high prices like high prices,” he joked, referring to a cycle of overproduction that generally follows years of higher market prices.

When asked to list two things that would be good for ethanol in 2015, Woodside said the first is continuing efforts to promote higher ethanol blends, which creates market access for the long term.

He also wants to see fair prices for corn, distillers grains and ethanol.

While lingering low corn prices might seem good for KAAPA Ethanol’s bottom line, they also can put some farmers out of business. “We need our customers here for the long term,” Woodside said.