Grain Market Outlook Newsletter
U.S. Ethanol and Biodiesel Market Situation
Ethanol and Biodiesel Market Trends and Profitability for January-February 2020
Daniel O’Brien, Extension Agricultural Economist – Kansas State University
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 of ($0.25 /gallon) for January, and February 8-21, 2020. This followed smaller – near breakeven – estimated loses of ($0.11 /g) in December, ($0.02 /g) in November 2019, and ($0.03 /g) in October 2019. These ethanol plant operating loss estimates have continued since August 2018 – averaging monthly operating losses of -$0.17 per gallon over the August – September 2019 time period. .
During the February 8-21, 2020 period, corn input purchase prices for Iowa ethanol plants are estimated to have averaged averaged $3.78 /bu – compared to $3.81 in January, and $3.73 in December 2019, and a harvest low of $3.65 /bu in November 2019.
Selling prices of distillers dried grains (DDGS) (10% moisture) averaged $140.28 /ton during February 8-21, down marginally from the range of $141.14 – $141.92 /ton in December-January, and from $138.45 – $139.82 /ton in October-November.
The selling price of ethanol via tank car and truck shipment out of Iowa ethanol plants is estimated to have been in the range of $1.24-$1.25 /gallon during January and February 8-21, down from $1.36 in December, $1.43 in November, and $1.48 /gallon in October.
Overall, since October 2019 the estimated cost of production of a representative ethanol plant in Iowa has been in the range of $1.45 – $1.51 per gallon, with estimated costs of $1.49-$1.50 per gallon during the most recent January and February 8-21, 2020 periods.
B. Ethanol Production & Stocks Trends
Since the beginning of the “new crop” 2019/20 marketing year (MY) for U.S. corn on September 1, 2019, U.S. ethanol production for the through February , has averaged 1.030 million barrels per week (mb/w) – with a range of 943 to 1,095 mb/w over the 24 week period. At this average pace throughout the remaining 28 weeks of “new crop” MY 2019/20, U.S. ethanol production would reach 15.797 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 5.582 billion bushels (bb) of feedgrains would be used for ethanol production in the current marketing year.
The USDA’s latest World Agricultural Supply and Demand Estimates (WASDE) report on February 11, 2020 have a forecast in “new crop” MY 2019/20 of 5.525 bb of U.S. corn would be used for ethanol production, and that 105 million bushels (mb) of U.S. grain sorghum would be used for Food, Seed, and Industrial (FSI) uses – which is primarily industrial ethanol production.
United States’ ethanol stocks have averaged 22,248,542 barrels per week since the beginning of the “new crop” MY 2019/20 in early September 2019 – through February 14, 2020. This weekly average ethanol stocks is down from the previous 12 month marketing year average (i.e., for MY 2018/19) of 23,281,532 barrels per week. From year 2010 through February 21, 2020, average U.S. ethanol production has increased by 23,143 barrels per week. During this same time, weekly average U.S. ethanol ending stocks have increased by 617,143 barrels per week. Large supplies of U.S. ethanol are having a negative impact on U.S. ethanol prices.
C. Biodiesel Price & Profitability Trends
The estimated profitability of Iowa Biodiesel plants has increased in January-February 21, 2020 period to
By Kansas State University estimates, during the February 8-21, 2020 period, soybean oil input purchase prices for Iowa biodiesel plants averaged $30 per cwt – down from an average price $33.01 /cwt in January. This occurred while biodiesel selling prices averaged $3.09 /gallon during February 8-21, being down from $3.164 /cwt in January.
Also during the February 8-21 period, the cost of production at representative biodiesel plants in Iowa has averaged $2.90 per gallon – down from $3.12 per gallon in January,$3.08 in December, $2.97 in November, and $2.94 /gallon in October.
As a result, net returns of this representative soy biodiesel plant in Iowa during February 8-21 were estimated to be a profit of $0.18 per gallon produced. This is comparable to an estimated profit of $0.04 /g in January, and losses of ($0.07) in December, and ($0.23-$0.24) /gallon in October-November 2019.