Ethanol and Biodiesel Market Trends & Profitability Through September 22, 2020
Daniel O’Brien, Extension Agricultural Economist – Kansas State University
September 22, 2020
A. Ethanol Price and Profitability Trends
Using an Iowa State University model and applying price estimates from Kansas State University, ethanol plants in Iowa and other Midwest states were operating at estimated losses on average of –$0.03 /gallon for September 1-22, 2020. These ethanol plant operating loss estimates have continued for 26 months since August 2018 – with average operatinglosses of -$0.15 per gallon – ranging from of -$0.01 to -$0.26 per gallon over the August 2018 – mid-September 2020 time period.
During the September 1-22, 2020 period, corn input purchase prices for Iowa ethanol plants are estimated to have averaged near $3.44 /bu – compared to $3.04 in August, $3.09 in July, $3.10 in June, $2.95 /bu in May, and $2.93 in April 2020. During the October 2019 through March 2020 period corn input purchase prices at Iowa ethanol plants averaged near $3.71 /bu following the corn production problems of year 2019.
Selling prices of distillers dried grains (DDGS) (10% moisture) averaged near $138.27 per ton during the September 1-22 period, up from $125.42 in August, $116.93 per ton in July, $127.49 in June 2020, $143.33 in May, and $192.05 in April 2020.
The selling price of ethanol via tank car and truck shipment out of Iowa ethanol plants is estimated to have averaged near $1.32 / gallon during the September 1-22, 2020 period, being up from $1.19 in August, $1.27 /gallon in July, $1.19 in June, and $1.00 in May 2020.
The cost of production of a representative ethanol plant in Iowa is estimated to be near $1.35 / gallon during the September 1-22 period, up from $1.25 in August, and the range of $1.01 to $1.29 during April through July 2020, and comparable to $1.33 in March, and the range of $1.45 – $1.51 per gallon during the October 2019 through February 2020 period.
B. Ethanol Production & Stocks Trends
During the “old crop” 2019/20 marketing year (MY) for U.S. corn ending August 31, 2020, U.S. ethanol production averaged 0.929 million barrels per day (mb/d) – with a range of 537 (on April 24th) to 1,095 mb/d (on January 10th) over the 52 week period. During the first two weeks of “new crop” MY 2020/21 (ending September 4th and 11th) U.S. ethanol production averaged 0.934 million barrels per day (mb/d). At this average pace throughout the remaining 50 weeks of “new crop” MY 2019/20, U.S. ethanol production would reach 14.310 billion barrels in “new crop” MY 2019/20. Further, at a rate of 2.83 gallons of ethanol per bushel of feedgrain used for ethanol production (corn and/or grain sorghum), a total of 5.057 billion bushels (bb) of feedgrains would be used for ethanol production in “new crop” MY 2020/21.
The USDA’s latest World Agricultural Supply and Demand Estimates (WASDE) report on September 11, 2020 have a forecast in “new crop” MY 2020/21 of 5.100 bb of U.S. corn would be used for ethanol production, and that 40 million bushels (mb) of U.S. grain sorghum would be used for Food, Seed, and Industrial (FSI) uses – which is primarily industrial ethanol production. Estimating 2 mb in other FSI usage for U.S. grain sorghum for non-ethanol uses (i.e., seed & other), total U.S. feedgrain usage for ethanol production in “current” MY 2019/20 would equal 5.138 bb, or 101.6% of the KSU projection of 5.056 bb.
United States’ ethanol stocks have averaged 22,642,000 barrels per week during “old crop” MY 2019/20, i.e., in early September 2019 – through August 2020. After reaching highs of 27.1-27.7 million barrels during the COVID-19 affected 1st three weeks of April, ethanol stocks declined approximately 25% down to an average of 20.329 million barrels during July-August 2020. During the first 2 weeks in “new crop” MY 2020/21 U.S. ethanol stocks declined further to 19,896,000 barrels per week.
C. Biodiesel Price & Profitability Trends
The estimated profitability of Iowa Biodiesel plants first increased and then declined during the January-June 19, 2020 period.
By Kansas State University estimates, during the September 1-22, 2020 period, soybean oil input purchase prices for Iowa biodiesel plants averaged $27.20 per cwt – up from $25.59 in May, $26.97 in April.
The selling price of Biodiesel at Iowa Biodiesel Plants is estimated to have averaged $3.17 /gallon during the September 1-22 period, comparable to $3.06 in August, $2.83 /gallon during July, $2.71 in June, and $2.58 in May 2020,
Also during the September 1-22 period, the cost of production at representative biodiesel plants in Iowa is estimated to have averaged $3.16 per gallon – up from $3.06 in August, and comparable to $2.82 in July, $2.69 in June, $2.58 in May, and $2.61 in April 2020.
As a result, net returns of this representative soy biodiesel plant in Iowa during September 1-22, 2020 were estimated to be nearly breakeven at $0.01 per gallon produced. This is comparable to a 3 month average of +$0.01 /g during June-August 2020.
Following are some graphics on U.S. Ethanol and Biodiesel Market price and profitability trends, which will soon be available on the KSU AgManager website: http://www.agmanager.info/