While margins on fuel ethanol production through 2023 remained mostly positive and, by most accounts, were profitable for long stretches, the industry increasingly focused on ways to expand demand in what many believe may be a low-to-no-growth domestic market in 2024.

Fuel ethanol margins opened December 2023 with heavy pressure on profits as spot ethanol prices fell to some of the lowest levels since early 2021. Ethanol available in the key Chicago bulk market was trading in mid-December for less than $1.65/gal – down about 38% from the peaks seen in late June and more than 23% below year-ago values.

Corn prices in the last half of 2023, particularly during and after the harvest season, were kind to processors, meaning that despite the late-season pressures, ethanol margins remained profitable as the end of the year approached, running well ahead of the same time in 2022.

Corn futures on the Chicago Board of Trade entered the back half of December with the front-month March corn contract at $4.83/bu, down 26.1% year to year. While ethanol margins were closing out the year under some pressure because of low prices, returns on production largely remained in the black.

The average return over operating costs at a typical dry-mill ethanol plant was calculated at an average of 34.64cts/gal into the second week of December 2023 and an average of 34.38cts/gal in the first week of the month, according to Iowa State University’s Center for Agricultural and Rural Development. While both figures were well below early November returns that topped 60cts/gal and the 2023 highs that the university calculated in the low 90cts/gal in September, they also outpaced the same time in 2022 when returns averaged less than 8cts/gal in early December.

The outlook for ethanol input costs suggests there may be more pressure on margins ahead, but not enough to wipe out profits or bring back some of the raging feedstock spikes that bedeviled processors in 2021. The latest Department of Agriculture forecast calls for average producer corn prices through the current marketing season of $4.85/bu, down $1.69, or 26%, from the previous season and some 19% below the 2021-2022 cost estimate.

The agency also projected domestic corn production from the recently completed harvest at 15.234 billion bu, up about 11% year to year. Domestic corn supply for the season is expected to top 16.6 billion bu, according to the USDA forecast.

US natural gas costs were largely suppressed through much of 2023, but that could change depending on how cold a winter the US experiences. Still, the latest government forecast calls for a $2.79/MMBtu average Henry Hub spot price in 2024. While that’s well below what the Department of Energy previously forecast, it would still put gas costs about 9% above the expected year-end 2023 average of $2.56/MMBtu.

While profitability may not emerge as an issue in 2024, ways to expand the ethanol industry remain a major concern as the internal combustion engine comes under assault from expanding local, state and federal environmental efforts and attractive incentives for electric vehicles.

The latest government forecasting from the Energy Information Administration has U.S. ethanol production in 2023 at an equivalent of 15.506 billion gal in 2023, according to an analysis by The ProFarmer Network, which has forecast 2024 output at only 15.443 billion.

In addition, USDA projects that 5.325 billion bu of corn will be devoted to ethanol processing for the marketing year through August – 2.9% more than the year before but nearly even with 2021-2022 estimates. At average conversion rates, corn-to-ethanol demand suggests ethanol output at about 15.176 billion gal for the period.

Annual ethanol production in the US peaked at nearly 16.1 billion gal in 2018, according to US government estimates.

While some of the latest forecasting also added slightly to ethanol demand expectations in 2024, no year-to-year growth is projected by EIA. At 928,000 b/d – or more than 14.226 billion gal – the agency now projects that 2024 ethanol demand will, in fact, ease about 1,000 b/d, or 0.11%, from 2023.

That has an industry facing the possibility of stalled blending use and production, eyeing several avenues for consumption growth that should become much clearer in 2024.

Exports of fuel-grade material remained solid through most of 2023, and ethanol producers largely expect overseas markets will again be thirsty for US material in 2024. Over the first 10 months of 2023, US ethanol exports totaled 1.158 billion gal, according to the Department of Commerce. That’s about 3.1% below the same period in 2022, when exports ended the year at 1.35 billion gal and accounted for about 8.8% of domestic output.

The loss of China as an ethanol market is expected to continue in 2024 as that country maintains a stiff tariff and generally pulls back on its reliance on biofuels despite its lightly enforced 10% ethanol blending mandate. Much like 2023, Canada, which soaked up 545 million gal of US ethanol through October, is expected to remain the largest customer of U.S.-made ethanol in 2024.

The ethanol industry will also continue to push for long-sought-for, permanent year-round approval from the EPA for up to 15% ethanol blending. The Biden administration used a series of emergency declarations in 2023 to allow E15 blending during the summertime volatility restrictions, but it failed to deliver a final rule – which the administration now expects to issue in March.

The ethanol industry endorsed the Nationwide Consumer and Fuel Retailer Choice Act in Congress that would legislatively remove summer barriers to E15 – so there is a good chance that, one way or another, the industry could get what it wants in the coming year.

It remains to be seen if ethanol can shoe-horn its way into relevancy for another fuel once considered a niche corner of the industry – sustainable aviation fuel – and late word from the Department of Treasury appeared to give the ethanol industry a chance at getting what it wants. Just before Christmas, the agency announced it would recognize a federal emissions model that alters the Department of Energy’s Argonne National Laboratory’s Greenhouse Gas and Regulated Emissions and Energy Use in Transportation, or GREET, that could pave the way for federal tax credits for ethanol-based SAF.

The Renewable Fuels Association, an ethanol industry group, said it is “cautiously optimistic” about the updated version of GREET due by March in final Department of Treasury guidance.

Another issue that should find more clarity in 2024, even if its relevance for the industry may have a more distant horizon, is carbon capture and sequestration as the industry struggles to maintain its “green” status amid increasingly stringent environmental requirements. But as 2023 headed to a close, the big, multi-state carbon projects hit significant headwinds.

Tough regulatory hurdles forced Navigator CO2 Ventures to drop its plans to build a 1,300-mile carbon dioxide pipeline after South Dakota regulators denied permitting for the project. That raised questions about the viability of similar CCS projects also facing regulatory delays – especially the massive Summit Carbon Solutions bid to construct a 2,000-mile carbon pipeline across Iowa, Minnesota, Nebraska and the Dakotas that proposes to connect some 32 ethanol plants to underground storage.

The Summit Carbon project faces stiff opposition from landowners and had to resubmit a once-rejected application to the North Dakota regulators for reconsideration. The company then announced that it no longer expects to start operations in 2024 and pushed the possible start date back to 2026.

CCS projects much smaller in scope continued to be a feature of ethanol producer planning. ADM, which has long operated carbon capture wells at its Decatur, Ill., operation, continued to develop a 350-mile network with Wolf Carbon Solutions – a company that is proposing to build a carbon pipeline from two Iowa ADM plants to Decatur. But, after unfavorable regulatory recommendations, Wolf withdrew its permit applications in Illinois in November with expectations of refiling in 2024.

Rex American’s plan for a carbon capture facility and a 7.2-mile pipeline at its One Earth ethanol plant in Gibson, Ill., is an integral part of its plan to expand production to 200 million gal/year as it seeks lower carbon intensity scores for its product.

While Rex executives see “smaller projects” such as theirs as “more doable” than some of the large, multi-state pipeline attempts, federal and state permitting remains a hurdle for 2024, and startup is not expected before the end of 2025.

Federal legislation such as the 2021 bipartisan infrastructure law and the more recent Inflation Reduction Act provide incentives – such as the federal 45Q tax credit for permanent geologic storage of CO2 to $85 per metric ton. Rex and other companies seek the tax credits to boost their bottom lines and as a way to preserve access to US West Coast markets that have adopted low-carbon fuel standards.