NCGA
Looks to ProExporter Network for Sense of Anticipated Harvest Effects
on Ethanol Industry (11-04-03)
NCGA Looks to
ProExporter Network for Sense of Anticipated Harvest Effects on Ethanol
Industry with the USDA projecting a 10.2 billion corn crop in its
October crop report, the National Corn Growers Association (NCGA)
is looking to experts like ProExporter Network (PRX) for an idea of
how such a crop would affect the growing ethanol industry in the United
States.
According to PRX’s
Bill Hudson, there are a number of factors at work throughout the
Corn Belt that both promote and limit ethanol mill profitability.
One positive force is slightly lower corn prices this marketing year.
“Corn is the leading variable cost in ethanol production,”
Hudson explained. “A surprise in foreign export demand, as from
China, could significantly raise U.S. corn farm prices and negatively
impact ethanol plant profitability.”
He added another
seemingly unrelated factor driving ethanol expansion is the higher
world price of crude oil. “High crude prices equate to higher
wholesale gas prices,” he said. “While high gasoline prices
generally suppress the economy, they make ethanol an even more attractive
additive to gasoline.”
But with the forces
that promote ethanol profitability come those that are slowing ethanol
– the most notable of which is natural gas. “Wellhead
gas prices averaged $2 during the 1990s, making it an attractive fuel,”
Hudson said, adding that all changed in 2000. “Driven by increased
consumption and curtailed supply, average gas prices more than doubled
in 2000.”
Those prices fell
off in 2001-02, but have spiked again to even higher rates in 2003.
PRX estimates each 50-cent increase in natural gas rates equates to
a 2-cent per gallon increase in ethanol production costs.
Finally, PRX examined
the price and supply of distillers dried grains with solubles (DDGS),
a byproduct in the wet mill ethanol production process. Hudson noted
that domestic feed consumption of DDGS has been increasing this year,
and this year DDGS consumption should benefit from higher priced soybean
meal. “However, despite this increased demand, DDGS prices will
continue to decline as expanding ethanol production expands available
supplies.”
Hudson concluded
that the forces impacting ethanol production and profitability act
differently throughout the Corn Belt. “As the demand for ethanol
continues to increase, the interaction of various forces will continue
to impact profitability.”
Last reviewed
November 4, 2003