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BiorenewablesHistorical Ethanol Gross Margins
The growth in the ethanol industry is partially driven by the potential for profit that investors see in the industry. One measure of profit potential is the gross margin for ethanol production, the difference between the revenues from ethanol plant outputs (ethanol and dried distillers grains and solubles [DDGS]) and the costs from variable inputs (corn and natural gas).
CARD is tracking ethanol gross margins based on an updated dry-mill production technique for ethanol. In the gross margin calculations, we assume that one bushel of corn and 72.8 thousand British thermal units of natural gas are required to create 2.8 gallons of ethanol and 17 pounds of DDGS. Given futures prices for the nearby contracts for ethanol and corn from the Chicago Board of Trade and for natural gas from the New York Mercantile Exchange, we have computed the ethanol gross margins from March 21, 2005, to the present.
The graph below divides the price of ethanol into three components: the net cost of corn in ethanol (corn costs less distillers grains value), the cost of natural gas in ethanol, and the ethanol gross margin. A positive gross margin does not necessarily imply profits as other costs, such as labor, plant financing, and maintenance, must be taken into account, but a positive gross margin does signal the potential for profits in the industry.
| Last update | Ethanol Price | Corn Price | Natural Gas Price |
| 5/12/2008 | $2.58/gallon | $6.04/bushel | $11.31/mmBtu |
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