Higher Corn Prices Equal Lower Ethanol Profit Margins

The Telvent DTN National Corn Index on Thursday showed a national average basis of 47 cents under the Chicago May futures contract, steady with the previous day. The national average cash price was up 15 cents for the day, following a stronger futures market. This translates into higher costs for raw materials for corn buyers at ethanol plants,

Granted, buyers have not been that aggressive in buying corn, because they had purchased sizeable quantities of corn for delivery in January and February that they are still using and the ethanol crush has been coming down during the past several weeks.

The higher cost of corn for ethanol use reduces the profit margin for ethanol producers. With corn prices expected to strengthen as a result of tight crop year ending stocks and possibly less acres planted than the USDA forecast last week at the Outlook Forum, future profits for ethanol producers don’t look that bright.

Ethanol plants are already operating in the red, a trend that will likely continue. U.S. Secretary of Agriculture Tom Vilsack has indicated that the government is going to continue to encourage production of as much ethanol as possible and use corn to do it. That being the case, ethanol plants will have to be pretty aggressive corn buyers and with competition from other corn users, corn prices look to move dramatically higher.

Ethanol demand is stronger now because of the proximity of the driving season, but with gas prices at the pump trending higher, the amount of ethanol blended gasoline used may not be as large as earlier thought. Higher corn prices could see ethanol production fall back.

(Source: http://www.dtnprogressivefarmer.com/dtnag/view/blog/getBlog.do;jsessionid=D9CEA7E6D99C60998E497FC4B79856C9.agfreejvm2?blogHandle=ethanol&blogEntryId=8a82c0bc2da1a99e012e833b3cc30a40)