January 9, 2009 / 8:42 PM / in 11 years

US weekly ethanol margins improve, still negative

NEW YORK, Jan 9 (Reuters) - Average U.S. ethanol distillers remained in the red this week, though not as deeply as last week thanks to an uptick in prices for the finished product, analysts said.

The ethanol crush spread rose about 7.8 cents to 19.8 cents a gallon, using the formula of the Midwest ethanol price, minus the corn price divided by 2.8.

Operating costs such as natural gas prices and overhead trim the crush spread by about 25 cents per gallon, bringing net margins to -5.2 cents a gallon.

“We continue to see negative profit margins and I don’t see much light at the end of the tunnel for another year or so,” said Ron Oster, analyst at Broadpoint Capital.

Some producers make the animal feed dried distillers grains as a byproduct of making ethanol, which can improve margins.

Corn is the main input cost for U.S. ethanol makers. March corn CH9 closed at about $4.10 a bushel on Friday, up about 3 cents from last Wednesday.

Ethanol prices <ETHANOL/US>, however, moved up at a faster rate, gaining nearly 10 cents a gallon to $1.66/$1.67 in the Midwest market, dealers said.

Analysts said the gains have come in the aftermath of a series of production shutdowns and curtailments as the hardest-hit distillers slow operations.

Lawyers for the top U.S. publicly traded U.S. ethanol company VeraSun Energy Corp VSUNQ.OB said last month that eight of the company’s 16 ethanol distilleries were in “hot idle” or ready to operate, but not producing.

The company filed for Chapter 11 bankruptcy protection in late October.

Even cellulosic ethanol companies that hope to make a new alternative motor fuel from non-food sources like agricultural waste and fast growing grasses and trees, have had troubles. Construction of BlueFire Ethanol Inc’s BFRE.OB planned Lancaster California cellulosic plant will be delayed until the company raises more funding [ID:nN02372433].

Despite the troubles, U.S. capacity to make ethanol has jumped 60 percent since last year to nearly 11.2 billion gallons per year. Please click on [ID:nN20582484].

The U.S. Renewable Fuels Standard mandate requires 11.1 billion gallons of biofuels to be blended into gasoline in 2009, which gave producers hope that margins would turn around this year.

Long term the RFS could be in trouble, however. The Energy Information Administration, the top U.S. energy forecaster, said last week that the United States would likely blend just 30 billion gallons per year of biofuels by 2022, not the 36 billion gallons the mandate requires. Please click [ID:nN17321571]. (Reporting by Richard Valdmanis; editing by Jim Marshall)

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