Ethanol Producer Margins are Waning

Published on: 14:01PM Mar 25, 2010

 

The chart of the week estimated ethanol producer spot profitability.  Why is this important to the commodity markets?  Well, the ethanol industry and protein/dairy farming industries all share a major input cost- corn.  And it’s been the rise in feed costs (including corn) which have challenged protein and dairy farmer profitability during the last two years or so.  As of late, ethanol producer margins have been waning despite the fact that crude oil prices have been on the rise and corn prices have mostly declined.  This is due to declining ethanol prices which we believe holds a clue.  You see typically crude oil, gasoline and ethanol prices will all trend together.  Currently in the US, the EPA states that gasoline can be blended with ethanol up to 10% and still be utilized in a customary vehicle. There are states that have further restrictions from there.  Because of these limitations, it’s quite possible that we are currently hitting or getting very close to the blending wall for ethanol with gasoline.  In other words, we may be using all the ethanol we can right now.  And if this is the case, corn use growth for ethanol could be stunted unless demand for ethanol expands by either exports or the EPA ruling to increase the limitation on the blend percentage this coming summer.