Despite ethanol’s long history, it’s been a venture that ebbs and flows with America’s needs and priorities. Politics have long played a key part.
Future crucial for crop demand and prices
Ethanol margins returned to the black during late spring and production bounced back from last year’s lows—increasing the corn grind and demand, even for pricey old-crop corn.
In addition, companies such as DuPont, POET-DSM, Abengoa and about 20 others are moving forward on cellulosic production, which uses corn byproducts. They are expected to reach up to 100 million gallons in 2014. This is good news for the bioenergy sector and farmers.
While no one knows for sure what bioenergy has meant to producer bottom lines, a study from Purdue University concluded that if the Renewable Fuels Standard (RFS) mandates had been waived in 2012, the impact on corn prices could have ranged from very little to more than $1 per bu. In total, the biofuels industry means billions of dollars for producer returns each year.
Despite the good news, some dark clouds have emerged. The petroleum industry has launched a full-court press to roll back the RFS.
Linked to that is the market reality. The effective 10% blend wall for ethanol has been reduced because gasoline consumption has fallen. This means if E15 and E85 don’t catch fire, corn use for ethanol could fall.
With global corn production increasing and weak U.S. export demand, continued biofuels growth is key to corn profitability.
"Mandates of 16 billion gallons of cellulosic ethanol by 2022 are realistic."
Production Bounce. High drought-driven corn prices forced many ethanol plants to either close their doors or cut production. Today, they operate at 87% to 89% capacity, up from 84% to 85% in 2012.
Archer Daniels Midland (ADM) says it’s operating at 100% capacity, and expects positive, though volatile, profits for the remainder of the year.
"Plants figured out how to make $7 corn work," says Chad Hart, ag economist at Iowa State University. How? Ethanol prices jumped 10¢ to 40¢ per gallon higher than costs.
The production change has been dramatic. The week of Jan. 25, the ethanol industry was using 82 million bushels of corn, but by the third week of June, that had increased to 95 million, a 15% increase. The forecast looks even better for 2014.
ADM’s Patricia Woertz, chief executive officer, expects the market for E85 to expand so blenders can meet RFS requirements that increase from 13.8 billion gallons in 2013 to 14.4 billion gallons in 2014.
Others are less optimistic. E85 costs more than E10 and has a reduction in energy value. Because gasoline consumption has declined, the 10% blend wall is likely to slow production even as the RFS mandate increases, says Sterling Liddell, Rabo AgriFinance senior vice president.
In 2013, the 10% blend wall will fall to 12 billion to 12.5 billion gallons—more than 1 billion less than the 13.8 billion mandate. He does not look for E15 or E85 to take root during the next three years.
- Summer 2013