OUTLOOK ’14: US fuel ethanol industry recovers on robust corn harvest

03 January 2014 19:51  [Source: ICIS news]

HOUSTON (ICIS)--Despite improved margins in 2013, the future of fuel ethanol production in the US may be ultimately in the hands of lawmakers in 2014.

The Environmental Protection Agency (EPA) recently proposed reductions to the Renewable Fuel Standards (RFS), which requires refiners to blend a set amount of renewable fuel, including corn-based ethanol, into the gasoline pool.

Some lawmakers have even called for the RFS to be abolished completely.

The production of fuel ethanol became profitable again in 2013, thanks to a robust corn harvest.

In 2012, the US went through the worst drought in 60 years, adversely affecting the corn yield and quality for the year. In fact, the US Department of Agriculture (USDA) had projected a record crop of 14.8bn bushels for the 2012 harvest prior to the drought. The final production level reached only 10.8bn bushels.

Ethanol plant margins suffered as a result, causing many producers to shut down plants or at least temporarily halt production until corn prices were more reasonable.

Corn futures rose to above $7/bushel by the summer of 2013 but had fallen to $4.22/bushel by 31 December thanks to 2013 much-improved corn crop, the final details of which are expected to be published in January in the USDA’s Annual Crop Production Summary.

With lower corn prices came better margins for producers.

 “While ethanol prices have also declined, ethanol producer margins have risen above $0.50/gal in recent months,” the US Energy Information Administration (EIA) said.

“Improved margins have incentivised greater levels of ethanol production, with output recovering to pre-drought levels. At the same time, lower prices have made ethanol more economically attractive for refinery blending, and output of ethanol-blended gasoline has risen. Net use of ethanol by refiners and blenders reached an all-time high of 884,000 bbl/day in August 2013," the EIA added.

The USDA predicts the 2014 corn crop to be a record at 14bn bushels.

By: Bobbie Clark
+1 713 525 2653

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