At Current Prices, Ethanol Plants Stand to Lose

ethanolmargin8002.jpg [3]At the current spot price for ethanol, ethanol plants with capital debt are expected to lose money at near-time corn prices. This is one of the findings reported by David Peters, assistant professor of Sociology, Iowa State University, in a new study entitled “Ethanol Profit Margins—January 2009.” For a copy of the report, visit www.soc.iastate.edu/news/ethanol-margins-jan09.pdf [4].

At $1.50 per gallon ethanol spot prices and $3.75 per bushel corn prices, these plants stand to lose $.36 per gallon of ethanol produced, equaling $38.88 million lost annually. For these plants to break even, corn would need to fall to $2.25 per bushel, Peters found.

These results are based on a scenario where a 100-million gallon per year ethanol plant built in 2005 is financing 60 percent of its capital costs at 8 percent annual interest for 10 years.

Even plants with no capital debt are expected to lose money at this time. Peters reported that again at current spot prices of $1.50 per gallon and $3.75 per bushel corn, plants are expected to lose $.22 per gallon of ethanol produced, totaling $21.6 million annually.

At the near-term ethanol futures price of $1.75 per gallon, however, debt-free ethanol plants are expected to break even at current prices, but incur small net losses at near-term prices. At these ethanol prices, the breakeven corn price would be $3.90.