Usually I wouldn’t take pleasure in reports an industry is losing money. But when the industry is is a net drag on society sustained almost entirely by governmental action rather than economic contribution — when we’re talking about ethanol — then I will take a bit of pleasure.
Reported by Minnesota Public Radio: “Ethanol industry lurches in wake of lost subsidy, oversupply“:
WORTHINGTON, MInn. — After predicting they would survive the end of a major federal subsidy without problems, it looks like officials at the nation’s ethanol producers may have been too optimistic.
Since the subsidy ended Dec. 31, ethanol profit margins have declined sharply, even slipping into negative territory. Experts see no quick turnaround in sight.
Now that the subsidy has disappeared, the ethanol downturn is being felt nationwide, including in Minnesota. The state’s $2 billion-plus industry ranks fourth in the nation in capacity and production.
At the Al-Corn Clean Fuel ethanol plant in southeast Minnesota, CEO Randall Doyal sees how the loss of the subsidy has hurt this business. He said his profit margin — the difference between the cost of making the corn-based fuel and what he can sell it for — has disappeared.
Unfortunately, it is mostly transitory pain, and the industry will survive this little economic storm under the sheltering arms of the Renewable Fuels Standard.
One part of the problem is that the petroleum refining industry stocked up on ethanol at the end of last year, when the blenders tax credit was still in place. Not surprisingly, demand for ethanol dropped in January (and yet some in the ethanol business seem surprised). In addition, the high price of gasoline is leading consumers to drive less, also reducing demand for the ethanol blended into gasoline.
[Doug Punke, CEO of Renewable Products Marketing Group] said another plus for the ethanol industry is the overseas market. Brazil, a country that produces its own ethanol, but where demand is high, has been a major customer.
“We’re seeing some export demand pick back up, which is necessary for this industry right now to balance out that supply and demand,” he said.
Last year U.S. ethanol companies sold about 8 percent of their production abroad.
What? We’re exporting home-grown American energy? Quick, somebody call Congressman Markey’s office, I’m sure he’ll want to put a stop to it right away!
RELATED: The Des Moines Register , “Ethanol 11 cents per gallon in red in January.”