Ethanol Blog

A recent report by CoBank predicts that the U.S. ethanol industry may experience only thin profit margins in 2015-2016, and that those profits may depend on prices of ethanol and distillers grains, according to a news release on the CoBank website (http://bit.ly/…).

The report, titled "Ethanol Industry Rebalances," examined the changing dynamics in the ethanol marketplace. After ethanol prices and plant margins plummeted in the last half of 2014, the industry rebalanced itself in 2015, keeping ethanol supply and demand well-balanced with positive earnings.

In the coming year, plants will likely experience positive and negative shifts, but should have thin profits, according to the report.

Corn prices are predicted to be fairly stable, but the prices of ethanol and distillers grain will dictate profits, according to Dan Kowalski, author of the report and director of CoBank's Knowledge Exchange Division.

Prices of distillers grains have been on a downward trend since mid-July, due largely to sluggish export demand, as well as slow domestic demand. However, the falling prices have resulted in improving the value of distillers grains relative to corn, which is prompting livestock producers to increase the inclusion rate of distillers in their rations.

"Ethanol profitability will largely hinge on two key factors: the volatility of energy prices and the industry's ability to maintain strong export sales," said Kowalski.

The report also warns that foreign markets could pose a risk, as China is expected to change policies which would discourage imports of corn-alternative feed grains such as distillers grains. China has been the largest buyer of U.S. distillers grains, so a cut in exports to China could present significant challenges to ethanol profits.

Cheryl Anderson can be reached at Cheryl.anderson@dtn.com

(ES)

© Copyright 2015 DTN/The Progressive Farmer. All rights reserved.