Ethanol Margin Flat at Neeley Biofuels

Rising Ethanol Stocks Put Pressure on Profit Margins Despite Rise in Credits

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
Connect with Todd:
Ethanol margins continue to be pressured by rising ethanol stocks. (DTN file photo)

OMAHA (DTN) -- Margins continue to be negative at DTN's hypothetical Neeley Biofuels 50-million-gallon ethanol plant and have dropped slightly since our January update.

Though the plant is paying less for corn, a drop in the price received for its ethanol has fallen.

On Wednesday, the plant reported a net loss of 31.8 cents per gallon, including debt service. The plant reported a 30.6-cent per-gallon loss in our January update. Margins have improved since August, however, when the plant reported a loss of 43.9 cents per gallon.

Most ethanol plants are not paying debt. If the hypothetical plant was not paying debt, it would be breaking even in this latest update. The plant reported a 1-cent-per-gallon profit in our January update.

The corn price paid dropped from $3.87 per bushel based on the Chicago Board of Trade futures price in March, to $3.80 for this update.

In addition, the ethanol rack price received by the plant dropped from $1.46 per gallon in January to $1.40 in this update. The price received for distillers dried grains remained steady at $140 per ton.

DTN Cash Grains Analyst Mary Kennedy said ethanol margins continue to be pressured by rising ethanol stocks, continued strength in cash corn basis and flat DDG prices.

"Domestic DDG prices should normally be higher in the winter, but the lack of extended cold weather in the Midwest has slowed demand," she said.

"Export DDGs, on the other hand, have moved higher in Chicago due to container shortages there, imposing a premium for nearby deliveries and pressuring the deferred deliveries, as the market sees product stuck in rail yards. This is due to significant delays in the delivery of containers into the United States as container vessels have been idled outside Chinese ports following the coronavirus outbreak. Even still, both the ethanol and DDG markets need China to step in and ramp up demand in order to help this market out."

In addition, Kennedy said the market for renewable identification numbers, or RINs, for corn ethanol (D6) has added about 17.8 cents since early January and is trading at 31.5 cents.

"With that increase, the ethanol market has yet to follow, even though the strength in the RINs market should signal higher demand," she said.

Since July 2018, ethanol margins have taken a severe turn south. Neeley Biofuels reported a 22-cent-per-gallon net profit on July 6, 2018. By Sept. 20, net profits sank to 8 cents per gallon. By Oct. 16, 2018, the plant reported a net loss of 34.5 cents. Margins hit what was then a low in December, as the hypothetical plant reported a net loss of 37.9 cents. The plant has since had losses topping 60 cents at times during the past few months.

DTN established Neeley Biofuels in DTN's ProphetX Ethanol Edition as a way 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

(AG/ SK)

Todd Neeley