Ethanol producers are cutting output after getting squeezed by the biggest drop in gasoline prices since 2008.
Valero Energy Corp. and Green Plains Renewable Energy Inc., representing about 15 percent of US capacity, have reduced operations as margins narrowed. At a typical mill in Illinois that makes ethanol from corn, profit margins have almost totally disappeared, compared with $1.33 a gallon a year ago, according to AgTrader Talk, a Clive, Iowa-based consulting company.
Gasoline and crude fell more than 50 percent from their peaks in June as the US shale boom helped global oil production outpace demand. While that was good for consumers, saving each American household $750, it dragged down the cost of ethanol 41 percent because the price is linked to gasoline. At the same time, corn, the main raw material used by biofuel producers, fell just 19 percent.
“Gasoline is down a lot and corn has come back up a bit,” Wallace Tyner, an agricultural economist at Purdue University in West Lafayette, Indiana, said by phone on February 23. “If you’re an ethanol producer, that doesn’t leave you much.” Gasoline lost 0.5 percent to $1.6125 a gallon in electronic trading on the New York Mercantile Exchange at 2:06 p.m. Singapore time.
Ethanol production
U.S. ethanol output fell 2.8 percent to an annualized rate of 14.8 billion gallons in the week ended February 13 from a record 15.2 billion last December, according to the Energy Information Administration (EIA).
Valero said on January 29 that it slowed run-rates by 2.6 percent for the first quarter, citing lower gasoline and ethanol prices and “relatively stable” corn costs. Green Plains CEO Todd Becker said on February 5 that he’s cut production rates “a bit as well.”
Lakeview Energy Llc., a Chicago-based renewable-energy company, lowered operating rates by 15 percent at its Coshocton, Ohio, biorefinery, COO Eamonn Byrne said on Tuesday by phone. More cutbacks appear likely. US inventories total 21 million barrels, the highest seasonal level since 2012, according to the EIA, the Energy Department’s statistical arm. Supply will tighten as plants with higher costs slow, according to Archer-Daniels-Midland Co. CEO Juan Luciano, whose company is the biggest US producer.
Bloomberg News