Ethanol industry gets after it

The January issue of EPM is now online, including a series of interviews featuring ethanol industry representatives' outlook on 2015 and 2016. Tom Bryan's editor's note appears in that issue with the headline "Let’s Get After It Now."
By Tom Bryan | December 27, 2015

For U.S. ethanol producers, 2016 will be defined by some consolidation and temperate growth amidst the backdrop of a virtually make-or-break moment for cellulosic ethanol. 2016 will bring a more visible separation between industry leaders and laggards, and it should deliver satisfactory margins for low-cost, low-debt producers that have made investments in efficiency and diversification.

While 2015 was nothing like 2014 in terms of margins and earnings, ethanol producers generally did well. It was a decent year, and most producers would probably take another 12 months like it. At the start of 2016, however, it’s simply impossible to know if the mild profitability of 2015 will carry forward. As we report in our annual CEO outlook story, “Moving Into 2016,” a variety of conditions contributed to the ethanol industry’s steadiness last year. Exports held strong and, to everyone’s pleasant surprise, gasoline consumption rose, which helped keep the demand and price of ethanol at suitable levels.

The industry did well maintaining and growing exports for both ethanol and distillers grains in 2015. In fact, ethanol exports exceeded 800 million gallons last year and will likely do the same this year. However, producers shouldn’t expect coproduct exports, or prices alone, to fundamentally compensate for thinner ethanol margins this year. As we report, both distillers grains and corn oil are currently experiencing low pricing relative to the highs of the past 18 months. And there’s just not a lot of evidence suggesting that those ancillary product prices will jump up quickly. 

Vendors highlighted in this year’s outlook story echo the sentiments of producers, saying new contracts and capital projects were established in 2015 despite thinner margins and lots of uncertainty over the renewable volume obligation (RVO) numbers of the renewable fuel standard (RFS). The ethanol industry’s ability to move business deals forward and finance new technologies in the face of policy adversity is a testament to its collective experience and resolve. 

Ultimately, the U.S. EPA’s final RVO rule, released on Nov. 30, falls far short of statutory levels—by 4 billion gallons—but at least it gives the ethanol industry certainty and a visible footpath ahead for E15 and cellulosic ethanol. The good news is that ethanol consumption is expected to increase from 905,000 barrels per day in 2015 to 918,000 barrels per day in 2016, according to the U.S. Energy Information Administration. Isn’t that going the right direction? The industry leaders featured in this issue seem to think so, and they’re ready to meet and exceed the RFS targets that are finally in front of them. Politics aside, American ethanol producers are getting after it. 

Author: Tom Bryan
President & Editor in Chief