Although the US ethanol market has been booming in recent years, the pressure of overproduction has become increasingly apparent and there is an urgent need to develop downstream markets. According to Richard Bullock, a grain market analyst at Brock Associates, an agricultural product research firm, the current US ethanol production capacity is already oversupply, and the correlation between production and corn markets is too large, and the downstream market is relatively narrow. These hidden risks have become the head of ethanol companies. On the sword of Damocles, the US ethanol industry has reached the crossroads of prosperity and recession.
Corn Market Drives Market
August 9, the Chicago Mercantile Exchange Group released the ethanol outlook report pointed out that the current correlation between ethanol prices and corn prices in the United States has greatly improved, ensuring the firmness of ethanol prices and market stability. Recent natural disasters around the world have been frequent and Russia has stopped exporting food. The market’s concerns about grain production have triggered an increase in international grain prices. The 2010 corn harvest in the United States is a foregone conclusion. The U.S. Department of Agriculture predicts that U.S. corn production will reach 329 million tons, a record high, but the export volume will also increase greatly. Therefore, U.S. corn prices will continue to rise steadily. In the past six weeks, the price of corn in the United States has increased by 27%, and the price of ethanol has risen by 23%.
According to the latest data provided by the US Energy Information Administration, the recent US ethanol production and sales have maintained a steady increase. In May of this year, ethanol production in the United States reached 846,000 barrels per day, which was 832,200 barrels per day in April and 873,000 barrels per day in July, a record high.
Due to booming production and sales, the performance of ethanol production companies rebounded. Anderson, an ethanol company, said that in the first half of this year, corporate net profits hit a record high of US$40.3 million, especially in the second quarter, net profit reached 25.2 million yuan. Among them, the company's food and ethanol sector revenue reached 19.6 million US dollars, much more than the same period last year's 8.9 million US dollars. The Green Plain Renewable Energy Group, one of the four largest ethanol producers in the United States and has an annual output of 500 million gallons of ethanol, has also announced that its second-quarter revenue has increased significantly year-on-year, from US$284.7 million in the same period in 2009 to US$453.4 million, or an increase of 60 percent. %; The net profit has risen sharply from $600,000 to $8.7 million.
There are hidden dangers behind prosperity
Although the current ethanol industry in the United States is booming, people in the industry are worried about future development. Sterling Riddle, an expert from Labo Agricultural Finance Corporation, believes that the pressure on ethanol surplus in the United States is increasing day by day. At present, there has been an excess of ethanol production capacity, and according to the US government's planned production of corn ethanol, ethanol refineries will continue to increase, which means that the ethanol industry's demand for corn will continue to increase.
Ethanol outlook report also pointed out that 2007 corn prices rebounded sharply, but ethanol prices have not followed up, resulting in huge losses and bankruptcy of US ethanol companies, so ethanol prices must follow the price of corn. However, there is great uncertainty in the supply and price of corn. For the ethanol industry, this risk is self-evident.
Anderson’s CEO Mike Anderson said that ethanol production in the United States may soon exceed domestic consumption, so manufacturers are actively expanding downstream consumer markets. He also pointed out that due to the current high Brazilian sugar prices, leading to high ethanol prices in Brazil, the United States ethanol companies are taking this opportunity to seize the domestic market, but this situation will soon be over, the future trend of the ethanol industry is not optimistic. Anderson expects that the earnings of the company's food and ethanol sector in the second half of 2010 may be lower than in 2009.
Downstream development requires government support
The U.S. government’s 45 cents/gal tax subsidies for corn ethanol producers and 54 cents/gal import duties on foreign ethanol are about to expire. A member of the U.S. Congress said that compared with fossil fuels, corn ethanol can only reduce air pollution and not reduce carbon emissions. By taking advantage of the current good development of the ethanol industry, national income should be used to subsidize cleaner and more efficient low-carbon energy sources. Ethanol producers in the United States reacted strongly to this and they believe that in order to relieve the excess ethanol pressure and ensure the development of the industry, the government should continue to provide funds and policy support for the development of the industry. Once the government stops preferential policies, it will have a serious impact on the US ethanol industry and even the entire society.
The industry believes that the U.S. government is not likely to extend the tax subsidies for corn ethanol companies. The ethanol industry must maintain stable development and relieve excess pressure. It must expand downstream uses, especially the construction of supporting infrastructure for ethanol and gasoline, and expand the proportion of ethanol blending. Ensure the competitiveness of ethanol gasoline. The United States ethanol production enterprise growth energy company recently proposed that it hopes that the government can exempt the infrastructure. At the same time, it installs 200,000 ethanol mixing pumps at the US refueling stations to provide transportation to the construction of transportation pipelines and promotes vehicles suitable for various fuels. The company also recommends that cars use 85% ethanol content of fuel. Jeff Brodie, CEO of another well-known ethanol producer in the United States, said that if ethanol gasoline has enough hybrid pumps and cars, the elimination of the tax exemption policy will ensure the competitiveness of ethanol gasoline.