In any industry, profits swing up and down in the short term, but for the ethanol industry the major long-term profitability trend continues to be quite favorable. Growth from this point will not likely be as fast and furious as it was in the previous five years, but growth nonetheless is continuing.
An interesting note is the profit picture for an ethanol plant has been changing significantly. More and more of the profits are coming from distillers’ dried grains (DDGs) as the export market is starting to take off. The charts show the magnitude of exports of DDGs – not to mention the potential if the trend can continue.
Before summer 2009, exports of DDGs were essentially nonexistent. This year it’s expected to be at least a 3-million-metric-ton business, and the challenge will be supplying the quantities requested.
While the coffee shop talks about China buying corn, that’s not likely to occur in significant quantities in the near term. The Chinese have only bought about 313,600 metric tons (12 million bushels) of U.S. corn this crop year. What China does want, however, are DDGs. They look more and more at the cost of shipping per protein-pound, and with the much higher protein content of DDGs, it makes more sense to import this product than it does corn itself.
Of all the DDG exports, as 2010 ended, over 30% of the exports were going to China monthly. That will likely increase as the ethanol industry grows and has a ready supply available for China.
Chicken Or The Egg?
Which comes first, the chicken or the egg? Now that an ethanol blend of 15% is available to consumers, the industry needs to ramp up to make it a worthwhile number. Fifteen percent is voluntary, not mandatory. More importantly, very few gas stations nationwide are equipped to handle a 15% blend.
Consequently, the industry is working hard for incentives to ramp up gas stations to supply the higher blend. Then the industry needs an aggressive campaign to convince the public that the higher blend is “good” for them. And then even more importantly, once the public accepts a higher blended ethanol or even the 85% blend, it has to be economical since it is “voluntary” and not mandatory.
These are all great trends, but it will take time to work through these many changes. The potential is enormous and it will change the corn and ethanol industry forever – if and when the industry can build the sales of ethanol, build more or expand current plants and increase DDG availability. Add to that new products that are being developed as a result of processing corn into ethanol, and five years from now the industry may not look anything like it looks today.