US weekly ethanol margins up on lower corn prices
NEW YORK, June 26 (Reuters) - Average U.S. ethanol margins have risen over the past two weeks on lower prices for corn, the top raw material cost for distillers, experts said.
"As long as corn prices stay under $4.50 a bushel level and we have a normal growing season, I don't see any major problems with ethanol producers losing too much money out there," said Terry Reilly, an analyst at Citi Ag Futures Research in Chicago.
The July corn contract CN9 on the Chicago Board of Trade closed at $3.82 a bushel on Thursday, down 67 cents from prices in early June. Corn is the top raw material cost for U.S. ethanol makers.
Reilly said a favorable weather outlook should help keep corn prices relatively low.
Spot ethanol prices <ETHANOL/US> in the Midwest were down about three cents to $1.76 per gallon, dealers said.
The ethanol crush spread rose about 21 cents to 40 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 and overhead trim the crush spread for average alternative fuel producers by about 20 to 30 cents per gallon, depending on the distillery, bringing net margins between 10 and 20 cents a gallon.
The slightly sunnier margins after months of negative to only slightly profitable levels came as a relief to the industry which has seen a slew of production shutdowns, bankruptcy filings and curtailments as the hardest-hit distillers slow operations.
Last month Pacific Ethanol Inc (PEIX.O), the largest West Coast ethanol producer, put its plants in California, Oregon, and Idaho in Chapter 11 bankruptcy protection. Its marketing arm did not seek the protection.
Earlier in May Dallas-based White Energy Inc, which had $500 million in revenues last year, also filed for bankruptcy protection.
U.S. production of ethanol is expected to be higher than last year amid a sharp rise in capacity to make the alternative fuel. U.S. mandates for ethanol blending call for increases each year at reach a maximum of 15 billion gallons per year of traditional ethanol by 2015.
Many ethanol producers make the livestock feed distillers grains as an byproduct, which can improve profits. Producers near feedlots can sell wet distillers grains, which are cheaper to make and can enhance profits. Ethanol plants farther from feedlots sell dried distillers grains, but have to buy natural gas to dry them, which adds to costs.
(Reporting by Timothy Gardner)
