Times are tough for ethanol producers. This is what the economics roughly look like at $5/BTU per bushel of corn and $8/MMBTU of natural gas. To produce 1 gallon of ethanol requires:
$1.85 of corn
$0.33 of energy
$0.14 of enzymes, yeast, etc.
$0.23 of labor, maintenance, and various miscellaneous expenses
There is a DDGS credit per gallon of ethanol of $0.55. Thus, the total cost to produce a gallon of ethanol today is $1.85 + $0.33 + $0.14 + $0.23 - $0.55, or exactly $2/gallon of ethanol. For reference, the February contract for ethanol in the Midwest as of this writing is $2.15. And $2/gallon is merely cost of production. It doesn’t take into account any return on investment.
Also note that due to the lower energy content, this production cost is equivalent to a $3 per gallon production cost for gasoline - and that this production cost is a moving target: As long as the ethanol mandates are driving up the price of corn and increasing the demand for and cost of natural gas, corn ethanol producers must chase their tails in a vicious cycle. Producers are going to be hard-pressed to ever match the 2006 windfall that was given to them when the MTBE phaseout drove ethanol prices sky-high.
Anyway, this was a useful exercise for me to understand the magnitude of the various inputs (and the DDGS offset) in corn ethanol production. I hope you found it of some value. If you see errors or have suggestions, please let me know.
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