Ethanol is back | Successful agriculture
The happy days are back at ethanol plants, with profits close to the all-time high of 2014.
Black ink has all but wiped out the industry’s bad old days in 2020 brought on by the pandemic-induced reduction in liquid fuel consumption.
Scott Irwin, Laurence J. Norton Chair in Agricultural Marketing at the University of Illinois at Urbana-Champaign, says the rapid rise in profits from ethanol plants has brought smiles to operators and plant owners. ethanol plants across the United States.
âThe happy days are back is a definite statement right now,â says Irwin. While he doubts the 2021 profit margins will surpass the record returns of seven years ago, he expects them to be close due to the incredible surge in ethanol prices that has taken hold. is produced during the last four months of the year. On March 28, 2014, a representative Iowa ethanol plant modeled by Irwin posted a record profit margin of $ 1.53 per gallon. As of mid-November 2021, profits at the representative Iowa plant stood at $ 1.34 per gallon.
“We are in scarce territory for ethanol prices and profits, and this has happened over a fairly short period of time,” notes Irwin. âWhat’s really interesting is that on August 1 the factories were basically operating at break-even margins. Since then, the prices and profits of ethanol have literally increased. By early 2021, factories in Iowa were selling each gallon of ethanol for $ 1.39. By November, ethanol prices had more than doubled to $ 3.17 per gallon.
Connie Lindstrom, senior biofuels benchmarking analyst at Christianson, PLLP, in Willmar, Minnesota, says ethanol prices have increased because demand for ethanol has exceeded supply and prices for corn have stabilized since the start of the harvest. Ethanol plants have also seen strong demand for the co-products they produce, especially corn oil which is turned into renewable diesel, she adds.
Christianson, who analyzes the finances of 60 ethanol plants that account for 35% of U.S. ethanol production, also noted that prices paid for corn have stabilized due to favorable yields from the 2021 crop, according to Lindstrom. âWe had a good maize crop this year,â she says, âwhich has kept maize prices stableâ. The dual trend of higher ethanol demand and abundant supply of raw materials is expected to continue, she adds, “which means we should get pretty good profitability in the future.”
Scott Richman, chief economist for the Renewable Fuels Association in St. Louis, Missouri, says the financial fortunes of ethanol plants began to reverse in August. This was when stocks of old-crop corn were low, corn prices were relatively high, and margins for ethanol producers were pretty slim, he says. These negative factors led to a decline in ethanol production until mid-September.
When the 2021 corn crop started arriving in September, according to Richman, gasoline demand jumped and ethanol plant profit margins increased significantly. âSince then, ethanol production has really accelerated,â he says, âand we have produced over a million barrels of ethanol per day for six consecutive weeks, repeatedly approaching production records. all time. And because the demand for ethanol has remained so strong, we have not been able to replenish stocks. ”
Walt Wendland, chairman and chairman of the board of directors of Ringneck Energy in Onida, South Dakota, says dry weather has reduced corn yields in the area, but the plant has been profitable as prices rise High ethanol prices have exceeded the higher corn prices that the mill pays.
Ringneck Energy, which began production in April 2019, produces 80 million gallons of ethanol per year. After a tough first year, Wendland says, Ringneck Energy was turning a financial corner in March 2020, when COVID-19 hit and demand for gasoline and ethanol plummeted. âOur starting year in 2019 was extremely difficult, but when we entered 2020 things were starting to get better until COVID hit,â Wendland recalls. âIn the end, we are doing well and things are looking pretty promising. ”
At the height of the economic implosion caused by the pandemic, Ringneck Energy cut production by 50% or more when demand was low. âIn the third and fourth quarters of 2020,â said Wendland, âwe returned to full production.â
Corn use skips
Corn remains the preferred raw material for ethanol plants. In November, the USDA estimated corn used for ethanol production in MY 2021-2022 at a total of 5.25 billion bushels, up 50 million from its previous estimate.
Because dry weather has reduced average corn yields in central South Dakota, where Ringneck Energy is located, the mill has brought in 20 to 25 wagons of corn each week to supplement the local corn it purchases for the transformation. The plant processes 80,000 bushels of corn per day. Yields of local corn averaged around 100 to 120 bushels per acre (bpf) in 2021, Wendland notes. Normal yields are closer to 150 bpa and 190 to 220 bpa in a good year.
âWe had an extended shutdown in August, thinking we would have an early harvest in mid-September,â says Wendland, âbut we had rains which delayed the start of the harvest until October 1st. The late harvest meant Ringneck Energy had to start using a 50-50 corn blend for processing, although corn was the preferred feedstock for the mill’s ethanol. Milo accounts for less than 5% of the plant’s output, according to Wendland, who thanks the plant’s marketing team for supplying it with raw materials, despite the dry weather.
Ethanol inventories have not increased because demand for ethanol has grown even faster, Wendland says, and higher ethanol prices have outpaced corn prices.
Ringneck Energy ships 60% of its ethanol on the BNSF Railroad to the West Coast, and 40% of its ethanol is destined for markets in the southern and western United States, it adds.
The company sells wet distillers’ grains to local livestock feed and calving operations in the region, which means it saves on natural gas expenses by not having to dry the distillery grains.
âCorn oil prices have been incredible,â notes Wendland, due to the demand for renewable diesel. âThis has been a real growing market for our corn oil and an industry-wide goal to increase profits. Ringneck Energy capitalized on these high prices by increasing its corn oil yields by 50%, he says.
Steve Roe, general manager and CEO of Little Sioux Corn Processors, LLC, in Marcus, Iowa, says the plant had one of its best quarters in the third quarter of 2021 and the fourth quarter looks to be even better.
As for 2022, “I do not see how we are going to have such a good year as in 2021”, he notes. “I just don’t think these big returns are going to last.”
Exports are the wildcard for 2022. “The export outlook looks bright as oil prices are high around the world, which will lead to an increase in ethanol exports as people replace gasoline with ethanol.” , said Roe. Domestic demand for ethanol will be 14.5 billion gallons in 2021 based on the amount of gasoline consumed. With US ethanol production expected to exceed 15 billion gallons this year, exports will have to make up the difference, he adds.
Domestic demand is expected to remain high.