Renewable Energy Report: March 2018 Report

In this month’s report, we look at the ethanol crush spread. Ethanol crush spread is a dollar value calculated as the difference between the combined sales values of ethanol, distillers dried grains with solubles (DDGS) and corn distillers oil (CDO) and the cost of corn in producing ethanol. This also is commonly known as the gross production margin (GPM). Previous updates covering GPM can be found in the September 2017 Report and March 2017 Report. This GPM analysis represents a real plant situation, and demonstrates the importance of the ethanol co-product market on the ethanol plant profitability.

Ethanol producers often use this spread to hedge the purchase price of corn and sales prices of ethanol and DDGS. The spread relationship between corn, ethanol, and DDGS varies over time and offers many opportunities for speculative actions. This GPM calculation is not intended to show precise ethanol plant margins.

Table 1: Weekly Average Iowa Ethanol and Co-Products Processing Values and Indicators of Average Gross Production Margin; February 2015 – February 2018.

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Supported by the 2007 Energy Act, ethanol production has increased. Production surged from 8.37 billion gallons in the 2007/08 September to August marketing year to 13.81 billion in 2010/11, reaching a record volume of 15.70 billion in 2016/17 (Figure 1). Data for the first four months of the 2017/18 marketing year indicates ethanol production climbed 2.8 percent to 5.37 billion gallons compared with the same period in the previous marketing year (5.23 billion gallons) (see Figure 1). 

Figure 1. U.S. Ethanol Production

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An economic study done by Iowa State University’s Center for Agricultural and Rural Development analyzes the potential impacts of a cap on prices of ethanol RINs (renewable identification number) and allowing E15 sales throughout the year.