Lower Gasoline Prices Still Pinching the Ethanol Industry

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August 10, 2015

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by David Shaffer (Star Tribune) Profits are down even though price of corn for fuel remains low. U.S. ethanol plants are producing more fuel, selling it at lower prices and taking a hit on profits.

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Producers made record or near-record profits in 2014 as the price of ethanol’s main ingredient, corn, dropped significantly while gasoline prices remained high for much of the year. But the big profits disappeared in early 2015 as fuel prices fell with the dramatic drop in crude oil prices.

Corn prices have remained low despite a run-up in July to more than $4 per bushel before falling again. That’s good news for the ethanol industry, but hard on farmers, who are projected to produce another large corn crop this year, keeping the price down.

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Brian Kletscher, CEO of Highwater Ethanol in Lamberton, Minn.,which reported a $400,000 loss in the quarter ending in April, said conditions have improved because ethanol has recently sold at a price — an average of $1.44 per gallon — that can be profitable.

“If we get $1.36 to $1.50 a gallon, we operate in a pretty good cash margin,” Kletscher said. “If it drops below that it gets to break even.”

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With retail gas prices about 80 cents per gallon lower than a year ago, Americans are buying more gasoline, which means they are also getting more lower-priced ethanol.

Juan Luciano, CEO of ADM, told analysts last week that lower prices at the pump and an increase in driving have boosted demand for gasoline by about 3 percent. He said he expects that pattern to continue beyond the summer driving season.

Two risks ahead

But crude oil and gasoline prices could drop even further, driving down ethanol’s wholesale price. “That is probably the biggest downside risk,” said McDermott. The other risk, he added, is oversupply. READ MORE and MORE (Bloomberg)

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