U.S. ethanol profits fall on higher corn costs

Tag : corn


U.S. ethanol profits fall on higher corn costs
Reuters, 31 October 2008 - Average U.S. ethanol distiller profitsremained miserable for the week ending Thursday as prices rose forcorn, the main input for making the alternative motor fuel in theUnited States, analysts said.
"If you're lucky, you're even," and not operating a distillerythat's been losing money to make the fuel, said Ron Oster, ananalyst at BroadPoint Capital in St. Louis.
Average U.S. distillers were making about flat to positive 10 centsper gallon for the week ending Thursday, about 10 cents less thanlevels last week, analysts said.
December corn futures on the Chicago Board of Trade closed at about$4.09 a bushel on Thursday, up about 19 cents from the previousweek.
Poor margins were not the only troubles for many ethanol producers.
"In addition to the difficult margin conditions, many ethanolcompanies have really shot themselves in the foot with some costlyhedges," Oster said.
VeraSun Energy Corp, the largest publicly traded ethanol producer,told its lenders and bondholders it is preparing to file forbankruptcy on Friday, according to a Wall Street Journal report.
The company's shares have plummeted from a year high of about $17to under $1 this week. The company had recently put itself up forsale due to costly corn contracts.
Ethanol prices rose a bit over the week as gasoline demandrecovered slightly on weak prices for the conventional fuel. In theMidwest, spot ethanol was $1.78 a gallon, up about 9 cents.
But the gains were not enough to surpass the higher corn costs.
Slim profits amid volatile corn prices have led to delays and otherproblems for producers this month. Aventine Renewable EnergyHoldings Inc said it would delay the start-up of its Aurora West ethanol plantin Nebraska until the second quarter of next year. It had beenscheduled to open in the first quarter.
The government reported late this month that ethanol production inAugust, the latest month for which statistics were available, rose1 million barrels from the previous month to 20.1 million barrels.
Even so, U.S. capacity to make ethanol is growing, which has helpedweigh on margins. U.S. ethanol capacity has jumped 60 percent sincelast year to nearly 11.2 billion gallons per year, which could keepa lid on margins until transportation bottlenecks are eased.
Average margins should range from positive 25 cents to negative 25cents per gallon for the next six to 12 months amid shippingconstraints and ample supply, analysts have said.
The ethanol crush spread was about 30 cents a gallon, using theformula of the Midwest ethanol price, minus the corn price dividedby 2.8. Operating costs such as natural gas prices and overheadtrim the crush spread by about 25 cents per gallon. Producers thatsell the animal feed dried distillers' grains can improve theirmargins. (Reporting by Timothy Gardner; Editing by ChristianWiessner)
Sourced from the Thomson Reuters Carbon Markets Community - a free, gated online network for carbon market and climatepolicy professionals.