DDG, Ethanol Price Fuels Margin Rise

Despite 44-Cent Corn Price Spike Since December, Ethanol Margins Recovering

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Ethanol plants are weathering the rise in corn prices by making more on distillers dried grains and ethanol. (DTN file photo by Tom Dodge)

OMAHA (DTN) -- Rising ethanol and distillers dried grains prices continue to drive improving profit margins at the hypothetical Neeley Biofuels 50-million-gallon ethanol plant, even as corn prices continue to rise.

The March futures price on the Chicago Board of Trade -- the price paid by DTN's hypothetical plant -- closed at $5.46 per bushel on Thursday or a 22-cent increase since our January update. The corn price paid has jumped by more than $1 since the middle of January.

Despite the corn price, the Neeley Biofuels plant net margins improved to a 25-cent loss or an improvement of 12 cents per gallon.

Most ethanol plants are not paying debt. If the hypothetical plant was not paying debt, it would see a 7-cent-per-gallon profit compared to a 6-cent loss in January.

For this update, Neeley Biofuels received $1.81 per gallon for its ethanol on the rack price -- a 44-cent spike since our December update. In addition, the plant received $225 per ton for DDG -- a $20 increase from our January update, https://www.dtnpf.com/….

The DDG price received by Neeley Biofuels has jumped by $78 since October 2020.

DTN Cash Grains Analyst Mary Kennedy said DDG prices have been even higher in recent weeks.

"DDG prices moved lower this week as plants have been recovering from the weather-related slowdowns in operations and logistics in February," she said.

"Wednesday's EIA report showed overall ethanol plant production increased 191,000 barrels per day (bpd) or 29% in the week ended Feb. 26 to 849,000 bpd."

Ethanol production remains about 19% lower compared to this time in 2020.

Donna Funk, a certified public accountant with K-Coe Isom based in Lenexa, Kansas, who works with ethanol plants, said higher corn prices are putting a damper on what would otherwise be a better situation for the fuel producers.

"I've not heard too much positive news from them lately and it is all driven by grain prices," she said.

"I think the grain-price spread among regions is even wider this year and China isn't helping. It has definitely helped it from being worse that is for sure, but grain prices are keeping the margins lower than you'd normally see with the ethanol and distillers prices. Also, in Kansas and parts Missouri and Iowa the grain prices are unusually high, and Kansas is also doubly impacted by China buying all the sorghum."

Many ethanol producers in Kansas also use sorghum as a feedstock, along with corn.

Last spring, during the beginning of the COVID-19 economic shutdown, ethanol margins were at some of their lowest levels in history.

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.

Read more about ethanol margins during the past year below.

Feb. 20, 2020:

https://www.dtnpf.com/…

Nov. 10, 2020:

https://www.dtnpf.com/…

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

Follow him on Twitter @toddneeleyDTN

Todd Neeley