Ethanol has its challenges for 2013 and 2014

decrease font size  Resize text   increase font size       Printer-friendly version of this article Printer-friendly version of this article

The ethanol industry is facing some significant challenges this year. High corn prices have significantly reduced ethanol production margins and some plants have shut down. Production, which some weeks last summer was running at a 14 billion gallon annualized rate, is now down to around a 12 billion gallon rate. Revenue over variable costs are running at about 5 to 8 cents per gallon compared to about 25 cents per gallon before the drought hit in June.

The ethanol blending mandate for 2013 is 13.8 billion gallons. Unless economics change, the industry will not produce 13.8 billion gallons of ethanol this year, so how will the industry meet the mandate? It is important to remember that the mandate is on a calendar year basis so it doesn’t exactly coincide with the crop year corn-used-for-ethanol forecasts.

The current USDA forecast for corn used for ethanol for 2012/13 is 4.5 billion bushels, suggesting ethanol production of about 12.5 billion gallons of ethanol. However, if corn yields this year return to near trend levels, corn prices will decline in the second half of the year and ethanol profit margins and production may increase. But production probably won’t exceed 13 billion gallons, even under optimistic price and profit assumptions.

In addition, we still export some ethanol, with exports in recent months averaging about 50 million gallons. So, let’s assume that we produce 13 billion gallons and export 500 million gallons in 2013 which would leave about 12.5 billion gallons for domestic blending. That is 1.3 billion gallons less than the mandate. But blenders can meet the mandate by turning in RINs that were saved when blending exceeded the mandated levels in previous years.

It is believed that RINs totaling about 2.5 billion gallons were carried over into 2013. So, the industry could meet the mandate with 12.5 billion gallons of actual ethanol and 1.3 billion gallons worth of RINs.

Because the industry can use carryover RINs to meet the 2013 mandate, that might get us through 2013, but what happens in 2014? A serious problem in 2014 will be the “blend wall”. Unless sales of E-15 or E-85 really take off, ethanol use can only total about 10 percent of gasoline use. And gasoline use is currently running at about 134 billion gallons per year. That suggests use of around 13.4 billion gallons of ethanol, but the mandate rises to 14.4 billion gallons in 2014. Unless the mandates are changed, the industry will need to use RINs in 2014 to meet the mandate above the amount of ethanol that can actually be used. Then the problem gets worse in 2015 with the mandate up to 15 billion gallons.

There are efforts in Congress to eliminate the Renewable Fuels Standard (RFS) mandates altogether, but the success of these efforts is doubtful. However, there are real challenges facing the ethanol industry over the next couple of years if things don’t change. Ethanol production may rebound next year and the year after if prices and profits are favorable, but it is not clear how we can use a lot more ethanol unless something is done about the blend wall.

Buyers Guide

Doyle Equipment Manufacturing Co.
Doyle Equipment Manufacturing prides themselves as being “The King of the Rotary’s” with their Direct Drive Rotary Blend Systems. With numerous setup possibilities and sizes, ranging from a  more...
A.J. Sackett Sons & Company
Sackett Blend Towers feature the H.I.M, High Intensity Mixer, the next generation of blending and coating technology which supports Precision Fertilizer Blending®. Its unique design allows  more...
R&R Manufacturing Inc.
The R&R Minuteman Blend System is the original proven performer. Fast, precise blending with a compact foot print. Significantly lower horsepower requirement. Low inload height with large  more...
Junge Control Inc.
Junge Control Inc. creates state-of-the-art product blending and measuring solutions that allow you to totally maximize operating efficiency with amazing accuracy and repeatability, superior  more...
Yargus Manufacturing
The flagship blending system for the Layco product line is the fully automated Layco DW System™. The advanced technology of the Layco DW (Declining Weight) system results in a blending  more...
Yargus Manufacturing
The LAYCOTE™ Automated Coating System provides a new level of coating accuracy for a stand-alone coating system or for coating (impregnating) in an automated blending system. The unique  more...
John Deere
The DN345 Drawn Dry Spreader can carry more than 12 tons of fertilizer and 17.5 tons of lime. Designed to operate at field speeds up to 20 MPH with full loads and the G4 spreader uniformly  more...
Force Unlimited
The Pro-Force is a multi-purpose spreader with a wider apron and steeper sides. Our Pro-Force has the most aggressive 30” spinner on the market, and is capable of spreading higher rates of  more...
BBI Spreaders
MagnaSpread 2 & MagnaSpread 3 — With BBI’s patented multi-bin technology, these spreaders operate multiple hoppers guided by independent, variable-rate technology. These models are built on  more...

Comments (0) Leave a comment 

e-Mail (required)


characters left

Declining Weigh Blending System

Ranco Declining Weigh (DW) is the standard in fertilizer blending because of the speed and accuracy of the blending process. ... Read More

View all Products in this segment

View All Buyers Guides

Feedback Form
Feedback Form