Ethanol industry having big run of big profits

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Ethanol Producer Magazine recently published an article discussing how ethanol producers have been enjoying one of their best periods of profitability ever, noted University of Illinois Economist Scott Irwin in a recent FarmDocDaily post, "Recent Trends in the Profitability of Ethanol Production."

The ethanol industry has seen four extended periods of plant profitability, with the most recent one being the longest one, starting in spring 2013 to the present. 

"This has been driven by a drop in corn prices that substantially exceeded the declines in ethanol and DDGS prices," Irwin said. "As a result the ethanol production industry is on a much sounder financial footing after being ravaged by drought-related losses in 2012."

Using an economic model of a representative Iowa plant, the current period of profitability has seen profits averaging 93 cents per bushel of corn processed, reaching a new high of $2.55 per bushel in early December 2013.

Irwin continued his analysis to look at broader trends in estimated ethanol plant profitability, looking at annual profits net of variable and fixed costs and the return to equity holders. He built his analysis using the representative Iowa ethanol plant model developed by the Ag Marketing Resource Center to track the profitability of ethanol production. For his analysis, Irwin updated some model assumptions using data from the 2012 and 2013 benchmarking studies done by Christianson & Assoc.

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