According to a new report from CoBank’s Knowledge Exchange Division, operating margins for ethanol producers will likely remain weak for the rest of this year due to abundant production, while declining corn production this year will also “squeeze margins and some ethanol plants will be forced to shut down or idle their production due to high corn prices or insufficient supplies.”
Ethanol plants had expanded capacity after several years of positive margins. However, margins began sliding in the summer of 2018 and plants have struggled to remain profitable since then. With stocks expected to remain above 900 million gallons through the remainder of 2019, margins are expected remain low.
Exports are cited as one area of optimism for ethanol producers, but that is based on China’s plans to convert to E10 blend gasoline nationally by the end of 2020. In the meantime, the report says domestic U.S. ethanol demand will likely be flat over the next two years, but potential growth area is E15 sold year round.
Increased demand for ethanol due to E15 will be limited in the next three years as retailers make these investments and consumer acceptance builds. Longer-term, the E15 fuel market will be able to provide stronger support to ethanol plant margins.
Persistent, low margins will also drive ethanol plants to diversify their revenue streams becoming corn bio-refineries and expanding co-product lines.