This is nothing new to the ethanol industry, but corn has taken an absolutely unprecedented drop in price over the summer, and many farmers are worried (rightfully so) that the price will plummet further with a record corn crop expected. Conditions this year in the midwest were extremely supportive for corn farming, so I'd be surprised if the crop is not a record one.
Notice the constant, nearly uninterrupted slide in price since the spring. I've highlighted where the break-even point is for most farmers (at least the ones I've talked to). We are already at $1.20/bushel below profit, so you can expect ethanol plants to have less corn truck traffic this fall than they traditionally do.
For farmers and for the ethanol producers, this is not good news. Despite ethanol production being at a 26 week low recently, the price of ethanol continues to plummet. It likely has further to go too. Notice in the graph on the left, which depicts ethanol futures over the past 6 months, that ethanol was relatively stable in price up until Labor Day... then it took a nose dive thereafter.
This is really crimping margins for ethanol producers. Thankfully due to low feedstock costs (corn being so low), margins here aren't too terribly bad. Where it becomes a problem is the price of Distillers Dried Grains, the animal feed byproduct of ethanol production. This price is typically locked in with the price of corn.
Now to the good news. The tumbling price of corn is finally translating to low prices at the pump. This is making E85 extremely attractive to consumers who own flexible fuel vehicles, or FFVs. E85 at many stations is now upwards of $1.00/gallon below gasoline, including Speedway stores - which have widened price spread between E85 and gasoline to at least $1 in Ohio, Illinois, Kentucky, Michigan, and West Virginia. Spreads at Speedway are also at 90 cents in Pennsylvania, 80 cents in Indiana, and 40 cents in Tennessee. This may not sound like a great spread, but Tennessee has little ethanol production, and is well outside of the corn belt.
Thanks to Speedway and other stations in Michigan that keep a $1/gallon price spread (see my previous post about yellow hose), other stations have been forced to compete.
Prices are as low as $1.99 in North Aurora, Illinois, and $1.97 in Lowell, Michigan!
