A new report from Cobank says the ethanol industry could soon face declining slim-to-negative profit margins.
The report is titled “Ethanol’s Growth Path: Output and Export Uncertainties Both Rising.” It outlines how an ethanol market fueled by corn prices at multi-year lows, together with reinvestment into expanding production capacity, will push supplies past demand growth. A Cobank senior economist says forecasts indicate that total ethanol production capacity will have increased 850 to 900 million gallons by 2020 when compared to 2017.
Ethanol producers will be facing a downturn in the next few years without a substantial increase in domestic demand or a boost in exports to clear out extra supplies. Demand for the product has been solid recently as low fuel prices encourage people to get out and drive more. Pump usage is going up as E-10 is the dominant blend but more and more people are using the higher E-15 blend while fueling their cars. The report says the longer term picture for ethanol is less optimistic. Weaker exports and lower prices for dried distiller’s grains have hurt profit margins in 2017.
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