Home / Markets / Markets Analysis / Corn market / Ethanol exporters seek port

Ethanol exporters seek port

01/28/2014 @ 8:26am

U.S. ethanol makers are banking on export markets as they grapple with Obama administration plans to cut U.S. consumption requirements, but the industry is hampered by a distribution structure built almost exclusively around the domestic market.
Archer Daniels Midland Co., Green Plains Renewable Energy Inc. and other ethanol producers are trying to boost sales to Brazil, Mexico, Asia and the Middle East, in part by cutting costs to make the corn-based biofuel more price-competitive overseas.
Exports could reach one billion gallons this year, increasing their share of U.S. output to 7% from 5%, as lower corn prices help producers sell ethanol more cheaply to foreign buyers, according to the Renewable Fuels Association, a trade group. But the $44 billion industry's efforts to further expand exports could be limited, analysts say, because the bulk of U.S. ethanol plants are located in the Midwest to be close to the corn supply rather than near shipping ports, driving up costs to transport the fuel.
The export ramp-up comes as the Environmental Protection Agency weighs final approval of a proposal that would for the first time cut the annual requirement for ethanol in gasoline in the U.S. The EPA, which proposed the change in November, is expected to make a final decision this spring after a public-comment period that ended Tuesday.
The ethanol industry and farm-state supporters are lobbying the White House to reverse its proposal, which would mark one of the sector's biggest setbacks to date. The plan would require about 13 billion gallons of corn ethanol in the nation's fuel mix this year, lower than the 14.4 billion originally intended under a 2007 law. In explaining its move, the EPA said the levels mandated in the law are difficult to meet because of a lack of demand for gasoline blends containing more than 10% ethanol and sluggish U.S. gasoline consumption overall.
Export markets offer a potential lifeline as more countries enact policies to reduce dependence on conventional oil, industry executives say. They cite, for example, the Philippines, where a policy encouraging greater use of renewable fuel led to an eightfold increase in imports of U.S. ethanol in the first 10 months of 2013 from a year earlier, according to the RFA.
In November, U.S. ethanol exports reached the highest monthly level since March 2012, helped by increased shipments to Canada, China, India and Mexico, the RFA said. Despite recent gains, exports for all of 2013 were expected to drop from a year earlier, the second straight decrease.
Many ethanol companies declined to discuss their export strategies, citing competitive factors. But executives have voiced optimism in interviews and earnings calls that exports can help the industry offset weak growth at home.
"I'm confident we'll be able to compete," said Todd Becker, president of Omaha-based Green Plains, the fourth-largest U.S. ethanol maker by capacity. "I didn't build this business on government policy. The EPA announced their reduction proposal, and a week later, I bought two more ethanol plants."
Green Plains, which owns a dozen ethanol plants and has about $3.5 billion in annual revenue, expects that 10% of its production will be exported this year. The company only has released nine months of financial results from last year, but said very little of its volume in that period was exported.
Patricia Woertz, chief executive of ADM, a leading U.S. ethanol producer and one of the world's largest grain processors, said at an investor conference in November that the company can withstand a cut in the federal ethanol-blending rules. "We'll get through it," she said. "The opportunity is to grow [exports]."
ADM aims to drum up more exports by cutting energy costs so it can produce ethanol more cheaply, Chief Financial Officer Ray Young said recently.
The industry, despite its uncertain outlook, is enjoying one of its most profitable periods in several years due to a roughly 40% decline in corn prices over the past year. Profit margins for ethanol producers at the start of this year were about 81 cents per gallon, a reversal from a net loss of 7 cents a gallon a year earlier, according to Iowa State University's Center for Agricultural and Rural Development. The industry in 2012 reeled from a spike in corn costs due to a historic drought in the Midwest.
The recent drop in corn prices is helping the U.S., the world's second-largest ethanol exporter after Brazil, sell the biofuel about 10 cents to 30 cents less per gallon than Brazilian ethanol, which is made from sugar, said Citigroup analyst Aakash Doshi. U.S. ethanol futures prices have fallen about 20% in the past year to about $1.90 a gallon.
U.S. ethanol exports could hit one billion gallons this year if the Obama administration cuts the ethanol mandate, the RFA estimates, because producers would ship more of the product overseas that otherwise would be sold domestically. That would mark the second-highest amount after 2011, when a poor sugar-cane harvest forced Brazil to sharply increase ethanol imports from the U.S.
Still, ethanol companies face many headwinds in trying to expand U.S. exports. Shipments to the European Union, a key buyer, have all but ended since the EU last year imposed a five-year tariff of about $83 per metric ton on U.S. ethanol after the European Commission, the EU's executive body, alleged that producers sold the biofuel below cost. U.S. biofuels groups, including the RFA, said the claims were unsubstantiated and blasted the tariff as "blatant protectionism."
The U.S. faces stiff competition from Brazil. The South American country's exports of ethanol to be used as fuel will rise 7% to 792.5 million gallons this year from 2013, the fourth straight annual increase, estimates the U.S. Department of Agriculture. Together, the U.S. and Brazil account for the bulk of global exports.
U.S. suppliers will need to invest in plants near rivers and shipping ports or improve their ability to get ethanol to shipping lanes to compete better against Brazil and other producers in the long-term, said Peyton Feltus, president of Randolph Risk Management, an energy consulting firm in Dallas.
"The plants should be located where they could be serviced by water and rail," Mr. Feltus said. "Most are truck-in and truck-out." Unless corn prices continue to fall sharply, he said, it will be tough for the U.S. to stay "competitive on the world market."
Jacob Bunge contributed to this article.
(END) Dow Jones Newswires
January 27, 2014 19:15 ET (00:15 GMT)
DJ U.S. Ethanol Exporters Search for a Port->copyright

CancelPost Comment
MORE FROM DOW JONES NEWSWIRES more +

More Pig Losses Seen, Smithfield Says By: 05/14/2014 @ 7:55am The swine industry is struggling to contain a deadly virus that's sweeping U.S. hog farms…

Senators Turn Up Heat on Railroad Companies By: 05/13/2014 @ 11:39am Four Midwestern U.S. senators add their voices to a growing chorus of farmers, ethanol producers…

Summary of Friday's WASDE Report By: 05/09/2014 @ 2:53pm The following table is provided as a service to Wall Street Journal subscribers in conjunction…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
Can Corn Catch Fire in September?