U.S. Ethanol Producers Push to Expand Capacity Despite Industry Uncertainty

Despite industry uncertainty for the foreseeable future and tighter margins, many U.S. ethanol producers are working to expand capacity, driving production to new highs.

Four companies are completing expansion projects that will add 375 million gallons of corn-based ethanol capacity, or 24,000 barrels of ethanol production per day this year alone, on the belief that domestic fuel demand and strong exports will support the added output.

Although seemingly huge, this increase is small compared to the U.S.’s total 1 million barrel per day output, and meager when compared to the expansion that happened within the industry in 2005 upon the launching of the renewable fuels program. However, this increase in capacity comes at a time when inventories are at a three year high and rising corn prices are tightening margins.

The increase also comes at a time of particular uncertainty for the industry. Although the Environmental Protection Agency (EPA) released its long-awaited biofuel targets through 2016 in May, attacks on the announced policy are mounting from many quarters. Demand growth is uncertain, and margins are already below 20 cents per gallon – just half of the eight-year average, and a fraction from the record $2 per gallon seen last year, according to Iowa State University.

Ethanol prices are currently $1.60 per gallon, and as long as they stay above $1 per gallon ethanol production should remain profitable, however once the summer driving season is over, many worry that inventories will climb steeply and prices will fall, forcing some plants to idle.

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