Ethanol Gross Production Margin Analysis (2024)

By: Jing Tang, Agricultural and Food Systems Statistical Analyst

We’ve conducted this report series over several years. Our first report started with abnormal weather events (serious flooding in primary corn states) in 2019. We discussed how the delays in corn planting influenced the ethanol gross production margin (GPM) values.

In 2020, the COVID-19 pandemic created unique and difficult situations. In the last two blogs we discussed how the GPM has behaved since the pandemic’s beginning in March 2020 until June 2021.

After recovering from the pandemic, the value of ethanol reached its highest level since 2014. In this article, we will focus on the behavior of the GPM from July 2023 to November 2024.

The GPM, in the ethanol industry, is commonly calculated as the difference between the combined sales values of ethanol, distiller’s dried grains (DDGS), distiller’s corn oil (DCO), and the price of corn.

All data used in this article came from the National Weekly Grain Co-Products Report from the USDA Agricultural Marketing Service website.

Figure 1 shows the monthly average of Iowa ethanol GPM for the years 2023 and 2024 (solid and dashed lines, respectively). The figure also shows the three-year average (2021 to 2023) of Iowa ethanol GPM for each month.

Almost all monthly summaries of GPMs in 2023 were above the three-year average values, due to the high gross margin in the last quarter of 2021. Conversely, after November 2023 and almost all months in 2024 to date, the GPMs have been below or close to the three-year average values. 

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Within the study time frame, average corn prices were $5.73/bu in 2023 and $4.15/bu in 2024. These were lower than the corresponding prices in 2021 ($5.89/bu) and 2022 ($7.07/bu). Corn prices decreased by about 19% from 2022 to 2023 and by 41% from 2022 to 2024.

Calculated GPMs showed extremely high values in the last quarter of 2021, with an average GPM of $4.18/bu. This figure is about two times higher than the average GPM in 2022 ($2.17/bu). It raised slightly in 2023, reaching $2.48/bu, but then continued to drop in 2024 to $1.86/bu.

Average DCO values were $0.36/bu for 2023 and $0.26/bu across the first eleven months of 2024, reflecting decreases of about 19.0% and 40.7% compared to the 2022 annual average DCO value ($0.44/bu).

Compared to 2022, ethanol values decreased by about 10.3% in 2023 and 33.6% so far in 2024. Also compared to 2022, DDGS values decreased by about 12.3% in 2023 and 38.3% so far in 2024. 

Although all three values showed decreasing trends in 2023 and 2024 relative to 2022, due to a significant decrease in corn prices from 2022 to 2023, the average GPM showed a slight increase from 2022 to 2023.

In Figure 2, the scatter points represent the sales values (raw data from AMS weekly report) for corn, ethanol, DDGS, and DCO using green, yellow, blue, and red colors, respectively. The black bars represent the range of weekly IA ethanol GPMs.

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Applying ANOVA and the Tukey-HSD test on the study period, i.e., January 2021 to November 2024, we found that:

  • For the first quarter (combining January to March monthly GPM values) of each year, in general, the GPM value in 2021 is significantly higher than in 2022, and there is no significant difference among the GPM values in the other years.
  • For the second quarter (combining April to June monthly GPM values) of each year, in general, the GPM value in 2023 is significantly higher than in 2021 and 2024, and there is no significant difference among the GPM values in the other years.
  • For the third quarter (combining July to September monthly GPM values) of each year, in general, there is no significant difference among all the years in the studied period.
  • For the fourth quarter (combining October to December monthly GPM values) of each year, in general, the GPM value in 2021 is significantly higher than in other years, and there is no significant difference among the GPM values in the other years.

Applying the Pearson correlation test, we found that within the study period, corn prices had strong and significant negative effects in all the summer months. The sale value of DDGS has had significant positive effects in the spring months (second quarter). The sale value of DCO has had significant and positive effects on GPMs from January to May, while it had negative (but not significant) effects in most months in the second half of the year. The sale value of ethanol has had a significant and positive effect on GPMs in January to May, and from October to December.

In summary, the ethanol price (ethanol sale value) is still the dominant variable throughout the study period and has had strong and significantly positive effects on GPM value, but the effect has become weaker than what was reported in last year’s article. The primary reason for this is that the correlation in June through September has become insignificant and has started to show mixed signs of effect.

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