Oil price drop effect on Corn

RGMartin

Well-known Member
What are everyone's opinions of the corn market given the sharp decline in oil. The ethanol plant here doesn't seem to be slowing down.
 
In your case it might be a matter of the plant having corn contracts that they have to honor. Going below break even cost is not a way to void a contract the last I knew. To answer the original question I had heard 2.50 dollar retail price on gas was the tipping point for ethanol being uneconomical to supply. It could be a real concern for corn producers next year.
 
I work at an ethanol plant. We are not slowing down a bit and according to the boss, we are still making a profit.
 
(quoted from post at 13:45:01 12/18/14) What are everyone's opinions of the corn market given the sharp decline in oil. The ethanol plant here doesn't seem to be slowing down.

Lower gas prices are based on crude oil prices. Ethanol hasn't gone down. In fact the lower gas prices should spur demand for more ethanol, not less because they still have to have in the gas we buy. And they are selling a lot more gas. More demand for gas=more demand for ethanol=more demand for corn.

Rick
 
Last week here in Iowa E85 was $0.05 to $0.10 higher than the 10% ethanol gas blend. This week they dropped the price so E85 is just barely under the 10% blend.
 
Wouldn't it all be good for the Ethanol plants???

Cheap corn = more profit when they sell the Ethanol.

If they states require a certain % of the fuel sold be Ethanol, then they have to buy the Ethanol at whatever the going price is.

No doubt the Ethanol plants have contracts that have to be filled, some may be for a year in advance.

So if I am making a product, and have a guaranteed market, and the inputs are less, should work.

But I may be wrong on how the whole thing works.

Gene
 
(quoted from post at 14:20:24 12/18/14) Yehbut the reason I heard for the decreased price is "lower demand". Doesn't look like it from the traffic.


Lower demand where? World wide there is a lower demand for oil but not in the US.

Lower prices at the pumps have more people driving. As far as ethanol is concerned the EPA mandate is 10% minimum. An easy example is gas demand is 10 gallons of which 1 is ethanol. Demand goes up, say 2X. So now they need 2 gallons of ethanol. That means they need 2x times the corn to make that ethanol.

Funny thing is if this, plus corn now being able to be shipped to China drives up demand for corn prices will rise again. Corn hits about 5.50 a bushel or so and everyone will plant corn again and drive the prices back down.

Then add in the EPA. They wanted to delay the 15% mandate because so many acres were taken out of CRP over the last several years due to prices. Somewhere near 33 million acres. That worries the EPA because a lot of that is highly erodible soil. Plus row crops have a higher erosion rate than the same soil in small grains or hay.

Rick
 
I know of gas stations here that do not sell a blended product so evidently there is no state law that applies. The lower the unblended product can sell for the more at a disadvantage ethanol will be.
 
(quoted from post at 18:02:25 12/18/14) I know of gas stations here that do not sell a blended product so evidently there is no state law that applies. The lower the unblended product can sell for the more at a disadvantage ethanol will be.

Fortunately in Kansas we do not have to put up with alcohol in our fuel. Alcohol-laced fuel is the most common, but real petroleum fuel (100%) is available if we look a bit.
 
If I had to guess ethanol is 90 percent of retail sales here. The trouble is people will not give a second thought to buying straight fuel if it can be bought for 10 cents per gallon less never mind more than 10 cents.
 
They were saying on Ag Day this morning that gas is cheaper than ethanol. That doesn't bode well for future production,except for the mandate. It might hurt ethanol exports the most.
 
Poet Ethanol in Lake Crystal Mn. is paying .25-.35
more for new crop 2015 corn then the local feed mill
or the local rail loading yard so they must
anticipate the demand being there for some time.
 
They want to bust up Russia, Iran, and Vensiualia, and slow
down the pumping in North Dakota. So the regular oil
companies are putting the squeeze on.

As long as corn is cheaper, ethanol will be fine. Unless crude
gets down into the $40 for any length of time.

For ag the bigger issue is the strength of the dollar. The coasts
of the USA are looking to do a bit better, allow some intrest
rates to go up a tad, and our ecconomy to look better. This will
make for a stronger dollar.

A strong dollar kills the middle of the country, we can't export
our raw goods wood, grain, ethanol, petro products. It gets
priced too high to other countries, so we sit with it, all go
cheaper. This makes the 2 coasts better off because their food
and fuel and fiber is even cheaper. And that makes the
ecconomy and this the dollar stronger.

Sending us in the middle of the country into a worse tail spin.

And that is where we are heading, barring something unusual
happening in the next couple years.

Ethanol will take care of itself, unless they put an increadably
squeeze on the countries mentioned.

Paul
 
I'd heard the other day people just simpler weren't driving
more even with the lower prices; but that was regular news
and I don't think they really research much any more on
regular news, so you could be right.

Using more fuel in the USA would increase ethanol use too, as
you describe.

All indications are that corn prices are on a slow slide downhill,
would not bet on over $5 corn any time soon. South America
looks to be having good weather, China is slowing to a good
ecconomy from a hot ecconomy, Russia has all of Europe
worried and conservative, USA ecconomy appears to be
warming up just a tad.

Each of those would signal a lower value on corn, together its
hard to overlook it all. Would take some major force,
widespread drought or South America blowing up their ports,
to get any real traction on corn prices in the USA.

Paul
 
You are assuming the economics for corn-based ethanol resemble a free market. They do not.

Government regulation, both state and federal, ensure that fuel distributors have to buy a certain amount of ethanol. Lower fuel prices means more demand for gasoline. Higher gasoline sales means more demand for ethanol to blend with gas.

That is not to say low oil prices won't hurt grain prices. There are a lot of countries that buy US grain with their oil dollars. If they can't produce oil profitably, they can't buy our grain.
 
Ethanol is still around $1.70 a gallon at the ethanol plants. Naturally there is freight on top of the 1.70 to get it to where it is needed.

Rack price on gas is still above that here at Magellan pipe line in Coralville Iowa. About $2.00 or so. Also some freight on the gas to get it to the stations.

Gary
 
How does this mandate actually work?

I've heard some on here say there is no ethanol at there local station. If it is mandated why aren't all selling E10 by now?
What happens if a gas station does not add an ethanol pump?

Just wondering?
 
I saw gas as low as $1.99 today. When I came by the ethanol plant the other day I think they were at $1.89 if I remember right. Of course those prices are tax included,not wholesale.
 
(quoted from post at 15:02:25 12/18/14) I know of gas stations here that do not sell a blended product so evidently there is no state law that applies. The lower the unblended product can sell for the more at a disadvantage ethanol will be.


The Renewable Fuel Standard law as passed in 2005 mandated refiners blend a minimum of 7.5 billion gallons of renewable fuels by 2012. In 2007 the law was updated to mandate a minimum of 36 billion gallons by 2036. In 2011 the refiners were approximately 1 billion gallons in excess of the mandate for which they get credit.

As long as they are in excess of the mandate they do not need to blend renewable fuel (ethanol) with their gasoline. They are free to sell straight non-ethanol gasoline as long as they meet their mandate, after which the EPA is authorized to in force the fine.

The law has been updated since 2007 however I believe many/most refiners are still in excess of the mandate. So, no state law just a Ferderal mandate (minmumm) that needs to be met to avoid a fine. As I understand it refiners could actually sell all straight gasoline if they choose to pay the fine. That would suggest that if ethanol price rose significantly above that of gasoline, refiners could pay the fine and still sell straight gasoline at a lower cost than blended.
 
Lower fuel prices should reduce some of the input costs to corn production: tillage costs, drying costs, transportation to market costs, etc. Lower fuel prices should also give consumers more money and boost demand for most corn end products: beef, pork, chicken, milk, eggs, etc.

The only down side I can see if if the demand for ethanol drops by over 50 percent. That seems very unlikely.
 
33 million more acres in production means more diesel fuel sold and there is more profit in diesel fuel for oil companies.
 
(quoted from post at 19:26:25 12/18/14) 33 million more acres in production means more diesel fuel sold and there is more profit in diesel fuel for oil companies.

There it is again. Big sales equals big profits. As if they have no employees or other expenses. If you buy ten weeks worth of stock and it looses 20% of its value in six weeks how much profit are you going to make?
 
There is no "EPA mandate!"

If there was an EPA mandate you would not be able to buy a drop of straight gasoline anywhere at any price.

Whether ethanol is "mandated" or not is on a state-by-state basis.

EPA "approves" up to 10% ethanol in the fuel, and they would only be "approving" up to 15%.
 
MK, are you responding to my posts? I did not use the word "mandate", but if you follow the EPA link I posted you'll see that's exactly the word the EPA uses. Although it's true the federal government doesn't require individual retailers to sell gasohol, they all have to buy their fuel somewhere. Since the oil companies are under considerable pressure to use ethanol, E10 is pretty much all the retailers can get.

As for being unable to buy ethanol-free gas, that's effectively the case in most parts of the country. Not so much because of "mandates", but rather because that's all that is available.
 
(quoted from post at 06:37:01 12/19/14) There is no "EPA mandate!"

If there was an EPA mandate you would not be able to buy a drop of straight gasoline anywhere at any price.

Whether ethanol is "mandated" or not is on a state-by-state basis.

EPA "approves" up to 10% ethanol in the fuel, and they would only be "approving" up to 15%.

Yes you are correct: The mandate to blend renewable fuels was established as part of the Renewable Fuels law passed by congress in 2005. The mandate does not require ethanol be blended into every gallon of gasoline sold in the USA, only that a minmum number of gallons are blended. After the minmum is met gasoline can be sold without the ethanol. That law also authorizes the EPA to levy a fine on refiners that do not meet their blend levels. In that regard the EPA is only serving to enforce Federal law.

Note: there are some State (local) laws requiring blending in cities etc. that have smog or other air quality issues.
 
Your post doesn't make sense. I would assume that older contracts would have a HIGHER price for corn. Once those contracts are honored the current market rate makes their ethanol even more profitable.

http://www.nasdaq.com/markets/corn.aspx?timeframe=3y


Not all ethanol plants are the same. Hundreds were built by local grain handling companies with very low efficiency. ADM is buying up those plants (some are sitting idle) and retrofitting them to their specifications which makes them much more efficient and profitable.

What surprised me is that the US could compete on the world market with corn based ethanol.

ADM said domestic ethanol demand in 2015 is expected to be around 13.5 billion gallons, similar to this year, while exports could rise as much as 25 percent from an expected 800 million gallons this year.

http://www.reuters.com/article/2014/11/04/adm-ethanol-margins-idUSL1N0SU28420141104

Lower oil prices have not dented ethanol export demand, but ADM is preparing for the possibility that oil prices remain depressed next year.
 

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