Things are looking up for the hard-pressed ethanol industry, a report says.
After bottoming out financially in 2008, "The industry has experienced a steady recovery rate throughout 2009," according to the new Biofuels Benchmarking Annual Report from Christenson & Associates, a certified public accounting firm in Willmar, Minn.
The report is part of a program that helps participating ethanol plants measure themselves in more than 90 financial and operational factors. About 50 plants took part in the program, with their collective results evaluated by the report.
Key to the industry's rebound is improvement in the grind margin, or revenues from ethanol and co-byproducts such as distiller's grains minus feedstock and energy costs, the report says.
Feedstock refers to the corn and other starches of starch used in ethanol. Energy is the natural gas, goal, propane and electricity used by an ethanol plant.
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The grind margin accounts for about 85 percent of a plant's net income, according to the report.
Ethanol plants' average grind margin the first quarter of 2006 was about $1.25 per gallon, thanks to attractive ethanol prices and relatively modest feedstock and energy costs, the report says.
But the average grind margin plummeted in 2007 and 2008 as feedstock costs shot higher, the report shows.
In 2006, feedstock cost an average of 75 cents per gallon of production. That rose to an average of $1.75 cents per gallon of production in 2008.
The turn-around
By fall 2008, the average grind margin was nearly zero, with average net income falling to a negative 38 cents per gallon from a high of $1 per gallon in the spring of 2006.
But feedstock costs dropped in late 2008 and 2009, allowing the grind margin to strengthen and profitability to return.
By the fourth quarter of 2009, the grind margin stood at 60 cents per gallon of production, with average net income rising to 13 cents per gallon, the report says.
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The Tharaldson Ethanol Plant in Casselton, N.D., which wasn't among the 50 plants participating in the program, opened in late 2008, when the grind margin, which barely was above water, was beginning to improve.
By late 2009, the plant's grind margin was substantially higher than a year earlier, says Russ Newman, vice president of development.
"Things are looking OK" now, he says.
The plant, capable of producing 120 million gallons of ethanol per year, currently produces about 9 million gallons per month, he says.
The number of ethanol plants nationwide grew from about 50 in 2005 to about 220 today, according to the American Coalition for Ethanol, a Sioux Falls, S.D.-based trade group.
About 200 of the plants are in operation, with the rest idled or in some stage of construction, according to information from the group.
The new Biofuels Benchmarking Annual Report provides independent confirmation that the ethanol industry is strengthening, says Brian Jennings, the group's executive director.
He says he's particularly pleased that the report shows the industry is increasingly efficient, using a shrinking amount of energy to produce a gallon of ethanol.
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That data can be shown to ethanol critics who inaccurately claim the fuel takes more energy to produce than the energy contained within it, he says.
