The price received for dried distillers grains came in at $113 per ton, down from $135 on May 22.
Mary Kennedy, DTN cash grains analyst, said the ethanol market also received a boost from the Illinois River closing on July 1 for repairs on five lock and dams, stopping barges from moving downriver from the Kinder Morgan Argo, Illinois, terminal.
The closure is expected to last through September 2020, she said, causing buyers to look for other options.
"As for DDG prices helping plant margins out, that hasn't been much of a factor lately," Kennedy said.
"DDG demand is still weak as maintenance diets are still being used by feeders and the recent stretch of hot weather brings down caloric intake for livestock. DDG prices have also needed to stay competitive with other corn coproduct and byproduct feed prices, most of which have been weaker as well due to the effects of COVID-19 on slaughterhouses."
According to a July 2020 CoBank analysis, the industry continues to face headwinds during the next few months.
"However, looking out three months, the industry faces both challenges and opportunities," CoBank said.
"Coronavirus is resurging in several states, and renewed activity restrictions will arguably reduce driving and fuel demand. As for opportunities, road trips and family vacations during the summer months typically means increased fuel consumption, but resurgence of COVID-19 could dampen travel plans."
In addition, the report said it expects the industry to continue to recover into 2021.
"We believe that ethanol fuel demand may recover to only 85% to 90% of pre-COVID levels," CoBank said.
"We conclude that the industry will transform and rationalize excess capacity and continue diversifying into higher-margin co-products."
DTN established Neeley Biofuels in DTN's ProphetX Ethanol Edition to track ethanol industry profitability. Using the real-time commodity price data that flows into the "corn crush" in ProphetX, and some industry-average figures for interest costs, labor and overhead, DTN is able to track current profits. It also tracks how much Neeley Biofuels would make or lose under an infinite number of "what-if" scenarios.
DTN uses industry-average figures from Iowa State University. Included in the figures are annual labor and management costs, transportation costs, debt-servicing costs, depreciation and maintenance costs. Although Neeley Biofuels is paying debt-service and depreciation costs on its plant, many real plants are not in debt.
Also, it should be noted the calculations include all other costs, such as chemicals and yeasts, electricity, denaturant and water. While DTN uses natural gas spot prices for these updates, many ethanol plants lock in prices on the futures market, so they are not as vulnerable to natural gas market volatility.
Todd Neeley can be reached at todd.neeley@dtn.com
Follow him on Twitter @toddneeleyDTN
© (c) Copyright 2020 DTN, LLC. All rights reserved.
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Increasing Fuel Demand Helps Ethanol Plants to Improve Profit Margins - DTN The Progressive Farmer
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