Ethanol production costs rise, plants close

cornBIZMOLOGY — The trend of US ethanol plant closures continues in 2013 as producer profit margins are squeezed. Drought has caused soaring corn prices and rising production costs for the industry. Gasoline and ethanol demand has also been sluggish. Market conditions challenge the entire ethanol industry, but most of the closures since mid-2012 have been of simple plants, according to the Energy Information Administration (EIA).

Unlike advanced ethanol production, simple plants do not recover corn oil from distillers grains. Recovered corn oil is a revenue driver for the ethanol industry that helps offset rising production costs. Advanced plants have margins that are about 15-20 cents per gallon higher than their less advanced counterparts. As a result, simple plants’ production has become less economically viable and about 20 plants closed between summer 2012 and January 2013. Valero Energy idled three of its plants in late 2012. POET and Abengoa Bioenergy have also temporarily halted production at several plants.

Plant closures have led to production levels reaching their lowest point in more than two years, when the government started collecting production data. The reduced supply may push up ethanol prices.

Declining margins at simple plants are prompting some ethanol producers to invest in more sophisticated technology to incorporate revenue-producing corn oil recovery into operations. As my colleague James Bryant reported in December 2012, ethanol producers are learning they need to find uses for all parts of corn and production by-products to sustain profits.

Rather than produce corn oil, some ethanol makers are moving away from corn and using sorghum. Others are making butanol instead of ethanol. Many are exploring cellulosic feedstock. According to a recent update from the EIA, “These approaches allow their products to qualify as advanced biofuels under the RFS, a category that specifically excludes ethanol produced from cornstarch, which has been the dominant feedstock for the U.S. ethanol industry.”

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Photo by Matt Dente, used under a CC-Share Alike license.

Rebecca Mallett

Rebecca Mallett has been researching and writing about companies, industries, and executives as a member of the Hoover’s editorial team since 2007. For the past 5 years, she has focused on the agriculture and food manufacturing, business services, and mining and energy industries as a member of the First Research team. Follow her on Twitter.

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