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Economist: Ethanol industry holding its own–for now

Low oil prices continue to pressure profit margins in the ethanol industry.

“Times are tough—margins are definitely a lot lower,” says Matt Roberts, Extension ag economist at Ohio State University. “Depending on the characteristics of the plant and where it’s located, they’re teetering on maybe a few pennies of profit to some pretty non-trivial losses in ethanol production.”

But considering the way oil prices have dropped, Roberts thinks ethanol prices have stayed surprisingly strong.

“Even 12 months ago, if you’d talked to any ethanol plant manager and said, ‘Hey, what do you think your income statement is going to look like if gas goes to $1.60 a gallon’, they would have said, “Rivers of red ink’. Instead, what we find is, most of them are breaking even,” he says.

Roberts expects ethanol production to stay flat for the next couple of years. Beyond that, he says, if oil prices remain at current low levels, the industry will feel the pinch.

“If we stay at 30 dollars a barrel—25 dollars a barrel—for the next three, four, five years, I believe there will be increasing tension on the Renewable Fuels Standard and the ethanol industry. Because I think, at that point, the standard will really be the only thing that is keeping some of these plants in business.”

Roberts made those comments in an interview with Brownfield at the Nebraska Farm Bureau’s Ag Edge conference in Lincoln.

AUDIO: Matt Roberts