Economic Tidbits

Farmers Can Benefit When Marketing to Ethanol Plants

Farmers benefited financially from long-term marketing opportunities when selling to ethanol plants versus local elevators. That’s one of the findings of research performed by agricultural economists at the University of Nebraska-Lincoln, including Nebraska Farm Bureau economist Austin Harthoorn. But the size of benefits are dependent on the size of ethanol plant and the timing of marketing. The research evaluated corn marketing opportunities over a 12-year period for farms different distances between an ethanol plant and three grain elevators. Six ethanol plant regions were considered, with each ethanol plant grouped into one of three size categories. Marketing opportunities were evaluated for pre-harvest, harvest, and spring sale. The farm’s net value from selling corn was a function of grain bids and transportation costs to each grain buyer. 

Figure 4 documents farms’ net return in $/bushel selling corn to the different-sized ethanol plants verses grain elevators. Points to the left of the black line show the number of observations during the period with negative net returns. In other words, the net price of selling to an ethanol plant was less than that received from selling to the elevator. Points to the right show the number of observations with positive returns.

The number of positive returns exceed negative returns, indicating farmers benefit from marketing to ethanol plants. The researchers found that, on average, there existed a $0.09/bushel gain in selling to an ethanol plant. And the larger the ethanol plant, the greater the chance of a positive net return compared to medium or smaller-sized ethanol plants. Pre-harvest and spring sales had similar returns for large ethanol plants while pre-harvest hedging provided a larger benefit for medium and small-sized plants. Overall, farmers were better off selling to ethanol plants in non-harvest timeframes.

FIGURE 3. USDA LIVESTOCK AUCTION DASHBOARD

Source: Austin Harthoorn, Logan Lloyd, Cory Walters, Kate Brooks, Producer long-term marketing opportunities with ethanol plants, Cornhusker Economics, Department of Agricultural Economics, University of Nebraska-Lincoln, May 3, 2023.

On selling to ethanol plants, the researchers conclude, “Results from past data indicate strategic long-term marketing opportunities exist, but the type (pre-harvest or spring) and size of benefit depend on the size of the ethanol plant.” However, the authors raise caution with interpreting the results as they only had a few years of data. One question is whether the benefits of selling to an ethanol plant will persist into the future. More information on the research can be found here.

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