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Ethanol's Year of Overcoming 2023's Challenges



Actor Christopher Walken was surrounded by others impersonating his distinctive voice in a commercial for BMW. A young girl dominated the competition with her skating performance on the ice but then drove with her dad to her ailing grandfather to recreate it so that he, too, could experience the moment. And Volkswagen traced the path of its iconic Beetle through the years since it first appeared in the 1940s.


Those three themes were all part of ads promoting electric vehicles during Super Bowl LVIII.



Electric vehicles seem to dominate the auto commercials on television during much-hyped events like the Super Bowl. But they are also the focus of automakers’ marketing messages throughout the year.


That emphasis isn’t crushing the biofuels’ market. Far from it.


Electric vehicles could still be a prominent part of the country’s energy future if the U.S. can better produce the batteries and other key materials needed, build out the charging station infrastructure nationwide that the vehicles will demand to become more mainstream, and make EV’s more affordable to the masses.


For now, there are powerful challenges for the industry. “As recently as a year ago, automakers were struggling to meet the hot demand for electric vehicles. In a span of months, though, the dynamic flipped, leaving them hitting the brakes on what for many had been an all-out push toward an electric transformation,” A Wall Street Journal article laid out of the initial optimism.

But that optimism began to wane as dealers noticed that the vehicles were lingering on their lots. “Ford, General Motors, Volkswagen, and others shifted from frenetic spending on EVs to delaying or downsizing some projects. Dealers who had been begging automakers to ship more EVs faster are now turning them down,” the WSJ article continued.


RELATED: The Wall Street Journal includes this report on why automakers’ expectations for electric vehicle demand haven’t matched consumers’ reality. Read that here (may require subscription). 


Electric vehicles present a competitive threat for the biofuels industry. It’s one of the reasons that leaders in ethanol-producing states – largely represented by Republicans – criticize electric vehicle mandates by prominent Democrats, President Joe Biden (could require that about two-thirds of new vehicle sales be electric by 2032), or California Governor Gavin Newsom (require that all new vehicle sales in his state be electric by 2035). 


The ethanol industry faced other challenges in 2023. But a new report examined how producers were largely able to overcome those challenges. Farmdoc daily from the University of Illinois followed the impact Russia’s attack on Ukraine has had on the industry, as well as how ethanol producers navigated inconsistent corn prices.


Chart showing price of corn at Iowa Ethanol plants

Ethanol is mostly corn, nearly 80 percent. When Russia invaded Ukraine, it forced the price of corn to escalate because of the impact on global supply. Ukraine had been providing about 15 percent of global corn exports (and 9 percent of wheat).


“Russia’s aggression in the Black Sea region increases the risk of the world grain market losing the number four corn exporter (Ukraine) and the number one wheat exporter (Russia) if grain vessels on the Black Sea become targets of drone strikes,” explained Colin A. Carter, distinguished professor with the Department of Agricultural and Resource Economics at the University of California, Davis, as he explained the threat last September.


 

Corn prices pushed past $8 per bushel in 2022 after Russia’s attack and started 2023 still hovering around $7 per bushel. Prices ended the year below $5 per bushel.


Timing for ethanol producers proved fortuitous. Farmdoc daily points out that ethanol began 2023 near $3 per gallon before dropping to nearly $2 per gallon at year’s end. But the year was profitable with revenues topping total costs nearly every week of the year.


Here is how that timing worked out so well for ethanol producers, per farmdoc daily’s analysis: “…corn prices declined throughout 2023 while ethanol prices held steady until the final three months of the year.  This lag in the adjustment of ethanol prices to the decline in corn prices was enough to spur profitability for most of the year.” 


The report summarized the prosperous year like this: “Real profits in 2023 were the fourth highest since 2007.” Average profits for the year were $0.29. That is nearly 2 ½ times the long-term average.


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