Coproducts help keep ethanol producers profitable in lean times

By Holly Jessen | September 21, 2012

Coproducts are becoming an increasingly important factor in ethanol plant profitability, according to the third annual benchmarking report released Sept. 18 by Christianson & Associates PLLP.

Coproduct revenue had remained relatively constant, at an average of about 15 to 16 percent of total revenue since 2008, according to the report. After gaining ground throughout 2011 and 2012, it accounted for 18 percent of total revenue in 2011 and 23 percent in the first two quarters of 2012. “By aggressively seeking out additional co-product revenue streams, plants can continue to remain profitable despite leaner margins,” said John Christianson, managing partner.

The benchmarking report is 53 pages long and contains information on 2011 as well as January through July of 2012. Although it was previously released in the spring, with the data from just one year, the timeline was changed this year. Moving forward, the company will release it in September, containing data from the previous calendar year. The shift in conditions at the end of 2011 to early 2012 was also taken into account.  “With the uniqueness of that quarter and the events that took place at the end of 2011, we thought it was important to try to include the dynamics at the beginning of 2012 in this report,” said John Christianson, managing partner.

The benchmarking report clearly illustrated the difference between 2010 and 2011, both good years for the ethanol industry, and the beginning of 2012. Grind margins were up, on average, by 9 cents from 2010 to 2011. In the first quarter of 2012, the number dropped by 24 cents on average. The grind margin for laggards, the 25 percent lowest performing plants, decreased by 32 cents while leaders, in the top 25 percent, decreased 28 cents. “With tighter grind margins, striving to become a leader in this area has taken on increased significance in 2012,” the report said. “The difference in grind margin between a leading plant and an average-performing plant, although mere cents per gallon, has a large impact when calculated for an entire production run.”

Plants that produced multiple coproducts had an edge. Coproduct netback rose by 24 cents a gallon from 2010 to 2011. Leaders did even better with an additional 7 cents a gallon more than the overall average. Corn oil extraction stood out among the coproducts produced. “That is probably the biggest driver as far as revenue is concerned, in these last six quarters,” said Paula Emberland, business analyst. About 53 percent of ethanol plants participating in the benchmarking program extract corn oil.

In addition, corn oil yields are rising. At the beginning of 2011, the average yield was about 0.39 pounds of corn oil per bushel of corn. In quarter two of 2012 that number had increased more than 40 percent to 0.55 pounds per bushel. Leaders squeeze out even more corn oil, averaging 0.72 pounds per bushel in that time period. Netback on corn oil fluctuated in 2011 but stabilized in the last three quarters at an average of $750 to $800 per ton, with leaders taking an average of $863 in the second quarter of 2012. In the last four quarters, ethanol plants producing corn oil brought in about 4 cents per gallon of ethanol sold, which would translate to about $2.4 million in additional revenue.

The trend of diversifying coproducts is likely to continue in the future, Christianson said. He expects to see even more high-value coproducts produced, turning corn-ethanol plants into true biorefineries.