Corn ethanol crush and the Midwest drought

There is a crush margin between corn and ethanol. Corn will convert into ethanol and DDGs which can be feed to cattle as feed. This is not different from the soybean crush which converts beans into oil and meal.

Ethanol producers have shut production because the crush is not profitable

–Corn ethanol crush  = 1 bu of corn = 2.8 gallons of ethanol 17 lbs of DDG’s; Gross Production Margin formula GPM  = (PDDG*.0085)+(Pethanol*2.8) – Pcorn

•Current margin $1.59 = ( 294*.0085)+(2.626*2.8) - 8.26) lowest in years

•Crush profit margin (ethanol – corn/2.8); now negative

•Crush spread  (ethanol*2.8) – corn; now negative

We can look at current prices to determine the profit margins for ethanol producers. The numbers are not pretty.The gross margin is still positive put at some of the lowest levels in years. Production will hsutdown under these types of margins. The only saving grace is the production of DDGs.

Response of ethanol production to higher prices has been strong:

–Corn consumption is down about 12% in the last two months

–Ethanol production has fallen to 2-year lows; down 15% to 820,000 bpd

–Ethanol stocks have fallen over 20% as refiners have drawn down inventories

–Ethanol exports have decreased and imports have come from Brazil

–Excess RIN’s have been used to meet refiner compliance