Ethanol industry may rebound this year
Producers stand to benefit as farmers make up lost ground in corn fields.
By Jim Probasco
Until last week, only 15% of the corn crop in Iowa (the leading corn growing state in the nation) had been planted.
Then came a week of good weather. Iowa farmers responded by launching an invasion of farm machinery into their fertile fields. As of Sunday, 71% of the corn crop had been planted according to The Associated Press.
The same scene played out in all of the key grain states to the extent that the U.S. Department of Agriculture said in its weekly crop progress update that 71% of the corn crop had been sown in those states as well. This figure isn't far off from the 79% average farmers planted by this time over the past five years.
State by state, the numbers are impressive. In addition to the 71% of corn planted in Iowa, 75% of this year's seed has been sown in Illinois, along with 70% of the crop in Missouri, Kansas, and Minnesota.
Tuesday's Daily Livestock Report, commenting on the unprecedented planting of 43% of the anticipated corn crop in one week said, "When accounting for the increase in corn acres that are expected to be planted this year, (last week) is by far the biggest number of acres ever planted in a one-week window."
Last year, 95% of the corn crop had been planted by now. However, last year featured a warm early spring. This year has not been nearly so favorable.
Farmers and commodity traders are not the only people paying attention to potential corn yields this year. Corn yields affect another industry in a big way. And that industry is ethanol.
Last year's drought conditions, lower corn yields, the resulting higher corn prices along with generally moderate gasoline prices, made ethanol so expensive that producers cut back for the first time in 16 years, according to Bloomberg.
As planting conditions improved this year, and the likelihood of a bumper corn crop increased, the doom and gloom surrounding ethanol has started to lift. More corn means lower prices per bushel. That translates to lower production costs, and all of a sudden, ethanol is competitive again.
All good news indeed to companies like Archer Daniels Midland (ADM), the nation's number-one ethanol producer. Revenue in the ethanol division of the company grew 7.7% year over year.
Another beneficiary is Valero Energy (VLO). Valero is number-three in ethanol production with a 1.2-billion gallon annual capacity and reported gross margins of $0.42 per gallon in the first quarter of 2013, compared with $0.34 per gallon in the same period last year.
Combined, Archer Daniels Midland and Valero are the two largest publicly traded ethanol producers in the country.
More From Benzinga
There are no subsidies on corn or on ethanol in the United States. The corn from which ethanol is made is field corn, not sweet corn, which is the kind you would eat at your dinner table.
You may get 20% fewer miles per gallon from ethanol, but you pay 25% less for it at the pump, and the price gap is only expected to increase! Your car and our society will benefit because ethanol is an oxygenate. Oxygenates are used by fuel blenders to increase the oxygen content of gasoline, which improves combustion efficiency and eliminates emissions of certain atmospheric pollutants. According to the EPA, 10 percent ethanol/gasoline mix can reduce volatile organic compounds by 9.7%, carbon monoxide by 36% and exhaust benzene by 38.9%. BTW, your car will run equally as cool with ethanol blended with the gasoline.
One of the byproducts from making ethanol is animal feed. Farmers would much rather feed their animals dried distillers grains or DDGs than straight field corn. A study from the Agricultural and Food Policy Center at Texas A&M said “…corn prices have had little to do with rising food costs.” They also said that “Important food items like bread, eggs, and milk have high prices that are largely unrelated to ethanol or corn prices, but correspond to fundamental supply/demand relationships in the world.”
Copyright © 2014 Microsoft. All rights reserved.
As geopolitical tensions threaten to spin out of control, investors are wondering how best to position their portfolios for the global turmoil.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.