Home / News / Business news / A turnaround for ethanol?

A turnaround for ethanol?

DANIEL LOOKER 04/05/2013 @ 4:03pm Business Editor

With the ethanol industry running at about 85% of capacity and corn prices suddenly cheaper after last week's bearish USDA reports, the industry may be poised for a brief rebound, according to estimates from economists and plant managers. Yet, there's enough excess capacity to make the return to positive margins fade by summer.

The U.S. Energy Department's March 29 weekly report of production and ethanol stocks, which came out on Wednesday, showed a slight blip upward from an ethanol supply what was approaching 20 days. Anything below that amount is considered a tight supply.

"You're seeing plants start back up that had been down," said Chuck Woodside, CEO of KAAPA Ethanol in Minden, Nebraska. "The question is, is it sustainable? You did see margins improve after the start of the year."

Woodside knows of two nearby plants in Nebraska that have restarted or are about to go back into production.

One widely-watched estimate of ethanol plant margins, from John Stewart and Associates, showed margins moving up from a year of depressed levels last January, but not until sometime in February or March, did they rise above the 38 cent-a-gallon level considered enough to break even above expenses but not depreciation.

Better margins came before corn prices crashed and were partly driven by distillers grains, which for a time were selling on par with the value of corn for feed, said Woodside. They're currently running at about 93% of the value of corn.

It may take time for any increase in production to show a dramatic shift in stocks, Woodside said, especially in the western Corn Belt. Some plants had released rail cars normally used to ship ethanol to the West Coast.  Some of those rail cars are now in North Dakota oil fields.

"If, for some reason, your rail cars aren't available, now you're stuck in the truck market," Woodside said.

Another factor in improving margins is a drop in ethanol exports from Brazil at the start of this year, said Walt Wendland, who is CEO of Golden Grain Energy in Mason City, Iowa and of Homeland Energy Solutions in Lawler, Iowa.

Last year, the U.S. began importing more Brazilian ethanol in July, just as the severity of the U.S. drought was hitting domestic production here.

"The inventory never dropped because the imports came in at a rate that made up for any decline in production," Wendland told Agriculture.com

He expects net U.S. ethanol exports to be strong into May of this year, which could help ethanol plant margins in the U.S.

"The third quarter is going to be a big question for the ethanol industry," Wendland said.

Corn stocks will be tight as the short 2012 crop marketing year ends. Whether plants continue to operate this summers will depend on local supply as well as the margins for the plants.

"A lot of these plants are down because they don't have corn in their area," he said.

In some states with wheat available for ethanol, such as Indiana, plants are considering adding wheat to the corn that's being fermented, said Wendland, who is treasurer of the ethanol trade group, the Renewable Fuels Association. The gluten in wheat created technical problems that limit blending with corn to about 20% of the grain that's fermented, he said.

CancelPost Comment
MORE FROM DANIEL LOOKER more +

Bullish on Ethanol Exports By: 09/19/2014 @ 1:24pm Remember MTBE?That’s the octane booster that oil refiners used to put into gasoline in this…

Zulauf on Farm Program Signup By: 09/19/2014 @ 12:49pm   RELATED VIDEO       This week our video…

Senate Committee Takes on Rail Delays By: 09/17/2014 @ 6:06pm The Senate Commerce Committee passed a bipartisan bill Wednesday that gives the Surface…

MEDIA CENTERmore +
This container should display a .swf file. If not, you may need to upgrade your Flash player.
Pre-Harvest Checklist