US Weekly Ethanol Margins in the Red, Demand Soft
US weekly ethanol margins in the red, demand soft
NEW YORK, Jan 23, 2009 (Reuters) – U.S. ethanol distillers on average remained in the red this week on soft demand from motor fuel blenders.
Ethanol producers have been suffering negative or low margins for months on weak demand, particularly as ethanol prices have traded above gasoline prices.
As distillers trim production because of the lack of demand, the price structure between ethanol and gasoline could continue to plague the renewable fuels industry for weeks or months.
“Anxiety levels are not expected to be reduced in the near future,” said Rick Kment, an industry expert at DTN in Nebraska.
Spot ethanol prices fell about 2 cents a gallon to $1.58 in the Midwest market, dealers said. Cash gasoline prices were about $1.10 to $1.15 per gallon, on the other hand.
The ethanol crush spread was practically unchanged at 20 cents a gallon, using the formula of the Midwest ethanol price minus the corn price divided by 2.8.
Operating costs such as natural gas prices and overhead trim the crush spread by about 25 cents per gallon, bringing net margins to about -5 cents a gallon.
Some producers make the livestock feed distillers grains as a byproduct of making ethanol, which can improve profits. Those near feedlots can sell wet distillers grains, which are energy efficient. Ethanol plants that are further from feedlots sell dried distillers grains, but have to spend money on natural gas to dry them.
Corn is the main input cost for U.S. ethanol makers. March corn CH9 closed at about $3.88 a bushel on Thursday, down about 3 cents from last week.
A downturn in ethanol margins over the last several months has deepened a series of production shutdowns and curtailments as the hardest-hit distillers slow operations.
U.S. ethanol company VeraSun Energy Corp., which filed for bankruptcy protection in October after making expensive hedges on corn and amid the credit crunch, said 12 of its 16 plants were closed.
The U.S. Renewable Fuels Standard mandate requires 11.1 billion gallons of biofuels to be blended into gasoline in 2009. The stricter mandate has given producers some hope that margins would turn around this year.
Long term the RFS could be in trouble. The Energy Information Administration, the top U.S. energy forecaster, said late last month that the United States would likely blend just 30 billion gallons per year of biofuels by 2022, not the 36 billion gallons the mandate requires.
As the price of ethanol has soared compared to gasoline, prices for credits — known as Renewable Identification Numbers — that refiners and blenders can buy in the open market to meet their biofuels mandates, instead of making the product, have risen to about 12 to 13 cents. (Reporting by Timothy Gardner, editing by Jim Marshall)
Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol. Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is more economical, cleaner, renewable, and more efficient than unleaded gasoline. Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.