Prospects for Ethanol Production Profits Dim as Gasoline Prices Plummet

Abstract

The magnitude of the decline in crude oil and gasoline prices has taken nearly everyone by surprise. NYMEX nearby crude oil futures this week touched $60 per barrel, almost $50 less than peak prices last summer. This is a major economic event with potentially far-reaching impacts for biofuels markets. We examined some of these impacts in two recent farmdoc daily articles (November 12, 2014; December 4, 2014). Our conclusion was that current high ethanol prices relative to gasoline prices, as illustrated in Figure 1, might slow the growth in domestic ethanol consumption, but would not likely result in consumption that is less than the 10 percent blend wall. In contrast, the high price ratio may represent a threat to growth in ethanol exports and could result in some decline in ethanol export volumes from current relatively high levels. Softness in export demand, in turn, would be expected to pressure ethanol prices and bring the ethanol/gasoline price ratio back to more normal levels. In today’s article, we investigate how much ethanol prices could decline from the combination of weaker export demand and continued low gasoline prices and the impact that lower prices would have on the profitability of ethanol production.