Profitability in the ethanol segment is there, thanks to a slight rise in the profit margins in the third quarter through the first half of September. Dan O’Brien, an agricultural economist with Kansas State University Extension, talked about the profitability of the U.S. ethanol sector that uses roughly 35 percent of a corn crop in any given year.
“The calculations through the first three weeks of September are looking pretty good. Profits based on that Iowa model, kind of straddling Illinois and Nebraska and parts of Kansas, at least showing about 24 cents a gallon in terms of profitability. The ethanol price has jumped up here of late. So, with the ethanol price going higher and the corn price sideways-to-lower, that’s when you get profits like this. So, for the last three months, we’ve had about 12 cents profitability in July, August, about 19-20 cents, and here early in the first three weeks of September, 24 cents.”
How long profitability will last depends on several factors, including whether grain sorghum gets used in more ethanol production.
“Unless an ethanol plant is closing down for some type of refurbishing or whatever, it would seem to be a pretty good time to run. Really, I guess, how long we will maintain pretty decent motor fuel prices, and that will bring ethanol along as well in the light of the U.S. economy, and also add in moderate strength in even grain sorghum usage. In fact, in talking with a USDA economist, Steve Ramsey out of the ERS, he indicated that we’ve had strong grain sorghum into ethanol, which is a surprise for the grain sorghum industry, given the weakness we’ve been seeing in exports.”
He’s hopeful that at least “okay” profitability is still ahead.
“Overall, I guess, that will be the story as we look at the ethanol market. Again, low-price feed stocks come into whatever we have for the ethanol market, and if that holds up at least decently, then you’d hope for a time of at least okay profitability for ethanol plants.”