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Tracking Ethanol Profitability
By Mr Ethanol | January 16, 2008
CattleNetwork:
The profitability of ethanol production is extremely variable. Due to the volatile price nature of ethanol and corn, its major feedstock, ethanol profitability can change rapidly from month to month. In addition, price variations of its co-product (distillers grains with solubles, DDGS) and its energy source (natural gas) add to the variability of ethanol profits.
To track the profitability of corn ethanol production, an economic model of a typical northern Iowa1 corn ethanol plant was created.This is a 100 million gallon facility with construction costs similar to plants built in 2007. The costs and efficiencies are believed to be typical of northern Iowa ethanol plants. The analysis is available here.
Major assumptions and characteristics of the ethanol plant model
1. Turnkey ethanol production facility
2. Facility built in 2007
3. Nameplate capacity of 100 million gallons
4. Facility construction cost (including working capital) of $1.97 per gallon of ethanol nameplate capacity
5. Lender finances 50 percent of the project
6. Equity financing of 50 percent of the project.
7. Plant operates at 120 percent of nameplate capacity
8. Conversion factor of 2.8 gallons of ethanol per bushel of corn
9. A bushel of corn produces 18 pounds of distillers grains
10. Carbon dioxide is vented (no local market)
11. Natural gas requirement of 34 cubic feet per gallon of ethanol
12. Typical input costs for an Iowa corn ethanol facility
Input coefficient adjustment. Although we believe the coefficients in this model are a good representation of a corn ethanol plant, the user has the ability to change any of the input coefficients in the model to fit a special situation. A change in an input coefficient will be reflected in the analysis tables and graphs.
The monthly profitability of this hypothetical plant is computed by using the monthly market prices for ethanol, corn, DDGS and natural gas. Each month the analysis is updated with the previous month’s prices. All other variables are held constant throughout the analysis.
Monthly price variables
1) Ethanol Price 2 – Ethanol daily price F.O.B. (Free on Board) the plant (converted into monthly average prices) at selected ethanol plants in northern Iowa as reported by USDA Ag Market News in the Iowa Ethanol Plant Report.
2) Corn Price (No. 2 yellow) 2 – Spot bid daily corn price (converted into monthly average prices) at selected ethanol plants in northern Iowa (north of Interstate 80) as reported by USDA Ag Market News in the Iowa Ethanol Plant Report.
3) DDGS Price 2 – DDGS daily price F.O.B. the plant (converted into monthly average prices) at selected ethanol plants in northern Iowa as reported by USDA Ag Market News in the Iowa Ethanol Plant Report.
4) Natural Gas Price – Monthly Iowa natural gas price for industrial users as reported by the Energy Information Administration (official energy statistics of the U.S. government).
Price adjustment… read full article.
Topics: Ethanol Prices |
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April 29th, 2008 at 11:48 am
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