Farm Industry News Blog

At Current Prices, Ethanol Plants Stand to Lose

ethanolmargin8002.jpgAt the current spot price for ethanol, ethanol plants with capital debt are expected to lose money at near-time corn prices. This is one of the findings reported by David Peters, assistant professor of Sociology, Iowa State University, in a new study entitled “Ethanol Profit Margins—January 2009.” For a copy of the report, visit www.soc.iastate.edu/news/ethanol-margins-jan09.pdf.

At $1.50 per gallon ethanol spot prices and $3.75 per bushel corn prices, these plants stand to lose $.36 per gallon of ethanol produced, equaling $38.88 million lost annually. For these plants to break even, corn would need to fall to $2.25 per bushel, Peters found.

These results are based on a scenario where a 100-million gallon per year ethanol plant built in 2005 is financing 60 percent of its capital costs at 8 percent annual interest for 10 years.

Even plants with no capital debt are expected to lose money at this time. Peters reported that again at current spot prices of $1.50 per gallon and $3.75 per bushel corn, plants are expected to lose $.22 per gallon of ethanol produced, totaling $21.6 million annually.

At the near-term ethanol futures price of $1.75 per gallon, however, debt-free ethanol plants are expected to break even at current prices, but incur small net losses at near-term prices. At these ethanol prices, the breakeven corn price would be $3.90.

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The Farm Industry News Blog features commentary from Willie Vogt, Jodie Wehrspann, Kathy Huting, Lynn Grooms, Daryl Bridenbaugh and Jeff Ryan.

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