Ethanol Margins Take Hit on Rising Corn

OMAHA (DTN) -- A sharply rising corn price paid by Neeley Biofuels' hypothetical ethanol plant on Monday took a bite out of the plant's profit margin since DTN's last update on Aug. 14.

The 50-million-gallon plant in South Dakota paid $3.79 per bushel for corn on Monday, a spike from $3.25 paid in the middle of August based on the October futures price on the Chicago Board of Trade.

As a result, the plant's net-profit margin fell from a 9.4-cent-per-gallon profit to a 22.2-cent loss. During the height of the COVID-19 economic shutdown, Neeley Biofuels reported a 16.1-cent loss.

Most ethanol plants are not paying debt. If the hypothetical plant was not paying debt, it would see a 9-cent-per-gallon profit. That's a decrease of 32 cents since the August update.

For this update, Neeley Biofuels received $1.48 per gallon for its ethanol, based on the rack price -- a 15-cent drop since our Aug. 14 update.

The price received for dried distillers grains came in at $147 per ton, up from $112.

DTN Cash Grain Analyst Mary Kennedy said the industry has yet to fully recover from the economic shutdown. Ethanol industry groups have reported more than half of all ethanol production either shut down or cut back production.

"In their latest weekly inventory report, the EIA (U.S. Energy Information Administration) reported that ethanol plant production is at a 15-year low," she said.

"Some of that is due to fall maintenance as well as we have not seen 100% of the plants that closed in March and April reopen. Plant margins have been steady, but if the cash corn price continues to move higher and gasoline demand continues to slow, that will likely change. However, DDG prices have remained high, adding support to margins for now."

EIA data for the week ended Sept. 25 shows ethanol production dropped by 2.8%. The 4-week production rate fell by 1.2%, or an annualized production of 14 billion gallons.

In addition, ethanol stocks dropped by 1.5%, or 15.2% below one year ago. The 19.7 million barrels of ethanol stocks is the lowest number since 2016.

DTN established Neeley Biofuels in DTN's ProphetX Ethanol Edition to track ethanol industry profitability. Using the real-time commodity price data that flows into the "corn crush" in ProphetX, and some industry-average figures for interest costs, labor and overhead, DTN is able to track current profits. It also tracks how much Neeley Biofuels would make or lose under an infinite number of "what-if" scenarios.

DTN uses industry-average figures from Iowa State University. Included in the figures are annual labor and management costs, transportation costs, debt-servicing costs, depreciation and maintenance costs. Although Neeley Biofuels is paying debt-service and depreciation costs on its plant, many real plants are not in debt.

Also, it should be noted the calculations include all other costs, such as chemicals and yeasts, electricity, denaturant and water. While DTN uses natural gas spot prices for these updates, many ethanol plants lock in prices on the futures market, so they are not as vulnerable to natural gas market volatility.

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

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