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Report on 2016 ethanol margins identifies two key factors

The author of a study on ethanol margins for 2016 says there are two hinging factors.

CoBank director of research Dan Kowalski tells Brownfield the first is energy market volatility.

“Could we see oil swing $20 up or down over the next 12 months?  That’s very possible, so not really knowing where that’s going but knowing it will remain volatile-that’s a big challenge for the industry on the revenue side.”

Kowalski says exports will be the other key influencer of ethanol margins next year.

“The strong dollar is a real challenge.  There are opportunities out there, but that’s the headwind.  If the strong dollar was not there or not as strong, I think things would be a lot easier to predict on the export side.  But that will be a variable that we’ll have to keep watching.”

Chinese demand for dried distillers grains is expected to weaken in 2016, which could negatively impact the U.S. ethanol industry.

But Kowalski says Brazil is planning to reduce ethanol exports.

“They’ve increased their blend levels domestically to 27 percent.  They have better prices domestically to sell their ethanol into, so they’ve pulled back away from the export market.  The U.S. has been able to fill some of that as of late.”

The report, titled “Ethanol Industry Rebalances,” also predicts fairly static corn prices in 2016 that would add stability to ethanol producers, and Kowalski doesn’t expect potential changes to the Renewable Fuels Standard to have much impact near term.