Nebraska is the nation’s second-largest ethanol producing state, accounting for about 15 percent of national production last year. After wild profitability swings last year, ethanol producers’ operating margins have been mixed so far this year. Prices for their products, though, are much better compared to last year.
The ethanol price earlier this month was $2.13/gallon, well above last year’s price of $1.32/gallon. Distillers dried grains (ddgs) prices, the other major revenue source for plants, is higher as well, $69.75/ton verses $39.86/ton last year. In total, the value derived by ethanol plants from sales of ethanol and ddgs is much higher this year compared to last, $7.67/bushel verses $4.68/bushel.
Figure 3 shows estimated ethanol operating margins for a representative Iowa plant. Even though the figure is based on Iowa production, it still provides a fair representation of conditions for Nebraska producers. The price of ethanol is split between the cost of corn (green area) and other costs (blue area). The red area indicates the returns over operating costs. The horizontal line represents the per gallon estimate of other costs like financing and returns to capital. Profits are implied when operating returns exceed the horizontal line.
January and February saw little positive operating margins and no profit from ethanol production most likely due the resurgence of COVID-19 and winter weather effects on travel. However, conditions improved in March allowing for positive operating margins and some periods of profit since the first of the year. While the cost of corn and other operating costs have surged, the increase in the price of ethanol has allowed ethanol producers to cover these costs and generate some profit. Ongoing economic growth, avoidance of a resurgence of COVID-19, a decent corn crop, and steady oil prices should help the ethanol sector continue to see positive operating margins.
Figure 3. Ethanol Operating Margins, Representative Iowa Plant