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November. 2022
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The Navigatiir

Ethanol Prices Pose Challenge for ADM, Green Plains

The U.S. ethanol industry has enjoyed a strong run so far in 2022, with producers enjoying profits and revenues far exceeding those of 2021. But clouds may be on the horizon: After enjoying a mostly strong environment through mid-summer, ethanol prices are down nearly 20% from the beginning of 2022, and analysts believe margins for producers could be pressured as a result. Companies like Archer-Daniel-Midland Company (NYSE:ADM) (ADM) (Chicago, Illinois) and Green Plains Incorporated (NASDAQ:GPRE) (Omaha, Nebraska) are feeling the pinch. Industrial Info is tracking roughly $4.25 billion worth of active, ethanol-related capital-spending projects across the U.S., nearly $700 million of which is nearing or under construction.

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ADM, the third-largest U.S. producer of ethanol as of 2021, cited higher industry inventories, lower domestic demand and elevated corn costs as the top reasons for lower ethanol margins. The company is counting on strong soy-processing margins to offset a continued weakness in ethanol margins, as well as reduced U.S. crop exports, through the end of the year.

"We actually had $1-plus ethanol margins [last year]," said Vikram Luthar, the chief financial officer of ADM in a recent quarterly earnings-related conference call. "This year, we clearly do not anticipate margins to be that high. We still expect [margins] to be healthy, given continued strong gasoline demand, the discount that ethanol has versus [reformulated gasoline], as well as the reasonable inventory levels. So it's really the ethanol side that is going to drive the significantly lower performance in the Carbohydrate Solutions business."

ADM began construction in July on an expansion of its wet corn mill and ethanol production plant in Marshall, Minnesota, which produces 50 million gallons per year of ethanol. ADM says the expansion is necessary to meet fast-growing demand from the food and beverage sectors. Subscribers can learn more from Industrial Info's project report.

Earlier this year, the U.S. Department of Agriculture (USDA) announced ADM would be among the domestic ethanol producers to receive $50 million to cover losses at a combined 45 facilities that were negatively affected by market trends during the COVID-19 pandemic. The aid was part of a $700 million package to support 195 U.S. biofuel facilities that had to cut production or fully close. For more information, see June 7, 2022, article - ADM, POET May Bolster Ethanol, Other Biofuel Capacity with USDA Support.

The heart of the U.S. ethanol industry has always been the "breadbasket" states. Just three--Iowa, Nebraska and Illinois--account for half of all U.S. ethanol production; with nine of the other states in the Midwest and Great Lakes regions, they account for 12 of the top 13 ethanol-producing states nationwide. For more information, see August 25, 2022, article - Ethanol Producers Expand Capacity Across U.S. Midwest.

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A heat map of active capital-spending projects for ethanol production across the U.S., from Industrial Info's Geolocator tool.

Green Plains, one of the biggest ethanol players focused on the breadbasket states, is pursuing one of the most ambitious carbon-capture and storage (CCS) projects in the nation. Last year, it entered into a long-term carbon offtake agreement with Summit Carbon Solutions, a subsidiary of Summit Agricultural Group (Alden, Iowa), which is developing infrastructure to transport carbon dioxide (CO2) from various locations to storage facilities in North Dakota. Green Plains believes the project will allow as many as eight of its biorefineries to achieve carbon neutrality.

Studies and evaluations are continuing for the proposed CCS projects, none of which would begin construction before mid-2023 at the very earliest. The eight sites designated for the CCS projects are:

  • 60 million-gallon-per-year facility in Superior, Iowa; see project report
  • 82 million-gallon-per-year facility in Shenandoah, Iowa; see project report
  • 70 million-gallon-per-year facility in York, Nebraska; see project report
  • 121 million-gallon-per-year facility in Wood River, Nebraska; see project report
  • 62 million-gallon-per-year facility in Atkinson, Nebraska; see project report
  • 116 million-gallon-per-year facility in Central City, Nebraska; see project report
  • 119 million-gallon-per-year facility in Fairmont, Minnesota; see project report
  • 55 million-gallon-per-year facility in Fergus Falls, Minnesota; see project report

Summit's Midwest Carbon Express Pipeline is designed to connect each of these facilities with its Bismarck CO2 Sequestration Site in New Salem, North Dakota, which is expected to hold 12 million tons of CO2 annually. Subscribers can click here for a list of reports for pipeline, terminal and other projects associated with Midwest Carbon Express.

Green Plains was among the ethanol producers to enjoy a strong second-quarter 2022, as its revenues exceeded $1 billion and its average production utilization rate hit a record 96.9% of capacity. Net income totaled $46.4 million, compared with just $9.7 million in second-quarter 2021.

Subscribers to Industrial Info's GMI Project Database can click here for a full list of detailed reports for projects mentioned in this article, and click here for a full list of related plant profiles.

Subscribers can click here for a full list of reports on active, ethanol-related capital-spending projects across the U.S.

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