Iowa Economists: 2014 Ethanol Prices Drop to 58% of Retail Gas

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April 15, 2014

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by Susanne Retka Schill (Ethanol Producer Magazine) The continuing shifting relationships between ethanol, corn and gasoline are the subject of two analyses done by Iowa agricultural economists for the AgMarketing Resource Center newsletter.
Don Hofstrand takes a look at the increase in corn production cost and how the saturation of the ethanol market may impact the profitability of the ethanol supply chain, and how these profits may be distributed between corn farmer and ethanol producer.
Robert Wisner examines the question of the changing relationships among ethanol, gasoline, crude oil and corn prices. “Corn supplies, barring another period of adverse weather, appear ample for both feed and fuel needs for the next few years if the corn-starch ethanol industry capacity remains near the current level,” he writes.
In a series of charts, Wisner compares corn prices to crude oil since 2003 as well as gasoline, diesel and jet fuel prices versus crude prices. In the case of gasoline and ethanol prices, the higher cost of transporting ethanol by rail or truck compared to pipeline for gasoline has widened the spread between the two. “Also, as supplies increased, ethanol prices tended to more fully reflect ethanol’s lower energy content than gasoline. The energy content of ethanol is about two-thirds that of gasoline, although part of the value difference is offset by ethanol’s higher octane content and the ability of refiners to produce cheaper low-octane gasoline and upgrade the octane level with ethanol.
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In his discussion of the historical trends and projections for the future, Hofstrand adds that if lagging ethanol demand “cannot continue to mop up excess corn supplies, corn prices may drop below the cost of production. If this happens, there will be considerable downward pressure on production costs.” READ MORE and MORE (MarketWatch) and MORE (Platts) and MORE (Platts)

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