Despite slimmer margins and pressure from falling gas prices, ethanol plants churned out the corn-based fuel at record-breaking rates last month.
The U.S. Energy Information Administration reported three consecutive weeks of record-breaking production in December as the industry ramped up to a record 992,000 barrels per day for the week that ended Dec. 19, before backing down to 972,000 the following week.
“The ethanol sector at the end of December was producing at about a $15.1 billion gallon a year annualized rate according to the Energy Administration Agency," Nebraska Ethanol Board administrator Todd Sneller said. "That is a very high rate. They had been operating in 2013 at about 13.8 billion.
“That requires virtually every plant in the country to be operating at or above capacity to reach those numbers," he said. "A sector doesn’t do that if it is in a position of bleeding all over the profit/loss sheets. You only do that when there is an opportunity there to make profit.”
Plants continued to pump out ethanol despite profit margins having shrunk significantly since spring. The Iowa State University Center for Agricultural and Rural Development reported the industry had profit margins of $2.04 a gallon in April, an all-time high, which had dwindled to 58 cents a gallon by Dec. 19.
Strong export demands, the lowest corn prices in four years and a healthy market for distillers grain combined to make 2014 a good year for ethanol.
“The uptick has obviously been good news for farmers because there has been increased demand for corn. So we have additional revenue coming into agriculture states and the agriculture sector,” Sneller said.
Even with the slimmer margins, profits are better than they were in 2012, when corn was selling for more than $8 a bushel due to drought, said Bill Day of Valero Energy Corp., a manufacturer of transportation fuels that owns an ethanol plant in Albion.
“This is a much better situation we are in today than we were years ago when we had some ethanol plants shut down,” he said. “We have a lot of experience not only with ethanol but with getting through cycles."
Shares of Valero, like those of many other energy companies, have taken a beating triggered by declines in the price of gasoline and oil, which slipped below $50 a barrel this week.
Cheaper gasoline could inspire U.S. motorists to take more road trips, increasing the need for fuel and moderating the blow to ethanol earnings.
Most U.S. gas is mixed with 10 percent ethanol to meet federal biofuel mandates, but the companies that mix the fuels also can stockpile and trade credits to meet government requirements.
On Wednesday, ethanol futures on the Chicago Board of Trade were 13.34 cents above gasoline on the New York Mercantile Exchange, Bloomberg Businessweek reported.
That could make buying credits more attractive than paying for ethanol for blenders and reduce demand for the corn-based fuel.