Ethanol makers are bracing for a drop in earnings as cheap crude pushes down the prices they fetch from refiners to blend the corn-based fuel additive into gasoline. Ethanol producers also face a recent jump in the price of corn, their main raw material, reports LexisNexis.
In 2014, the ethanol sector had one of the most-profitable years in its history, supported by strong export demand and low corn prices—the lowest in about four years.
Cheaper oil prices have made for an uncanny situation for ethanol makers. Gasoline prices currently trade at a discount to ethanol, making blending of the biofuel—which has been required by federal law since the 2000s—a pricier proposition for fuel companies. Most U.S. gas contains as much as 10 percent ethanol as a result of the federal rules.
I think we’re facing a period of dim ethanol prices and profitability, said Scott Irwin, professor of agricultural economics at the University of Illinois. At $1.50 [per gallon for the] wholesale price for gasoline, ethanol producers can’t pay $3.75 per bushel of corn and make money.