Producers of ethanol, the biofuel made from corn, are finally catching a break as the summer U.S. travel season is bringing an unexpected windfall to an industry that's been saddled with weak consumption since the pandemic.
Rebounding fuel demand and cheaper grain have lifted the profits of turning corn into ethanol by 70% this year to roughly 80 cents per gallon, according to Bloomberg Intelligence data. Last month, buoyed by a blockbuster July Fourth holiday for road travel, ethanol margins touched the highest level since late 2021.
That's a badly needed turnaround for ethanol makers such as Andersons Inc. and Archer-Daniels-Midland Co. The industry has struggled under the weight of sluggish consumption and skyrocketing corn prices following Moscow's invasion of Ukraine. Things had gotten so bad that companies including Green Plains Inc. had idled capacity to help erase a glut.
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Now, a rebound in driving demand, particularly for vacation travel, has lifted gasoline consumption and ethanol blending, said Pat Bowe, chief executive officer of Andersons, one of largest US grain handlers. US law requires most of the gasoline sold in the country to contain at least 10% ethanol. Throw in solid export demand for the biofuel, and "margins have been firmer all year and higher than people anticipated early on," Bowe said in an interview.
Ethanol producers are likely to see margins stay elevated with rising oil prices and softer corn, a combination that makes gasoline more expensive and ethanol cheaper. A record US corn harvest this year is expected to make the raw material even more affordable for ethanol makers in the months ahead. The gasoline-to-ethanol spread is currently sitting at minus 62 cents, a level that incentivizes higher blending.
