Disregarding concerns over where the US Environmental Protection Agency might set the finalized 2014 Renewable Fuel Standard targets, Archer Daniels Midland sees major ethanol profit abroad, president Juan Luciano said Tuesday.
In ADM's second-quarter earnings call, Luciano declined to speculate what the final blending mandate might look like once the EPA finally releases the long awaited numbers, but he was confident that the second half of 2014 could be very bullish for ethanol producers.
"Given these economics with lower corn prices, ethanol is so advantaged, and we'll continue to have a way in the fuel markets," Luciano said. "Exports will continue to be the driving force behind margins."
Luciano said ADM is forecasting US exports to total in the range of 850 million-1 billion gallons in 2014. With a projected total production of US ethanol in range of 14.3 billion-14.7 billion gallons/year and a US Energy Information Administration estimate of gasoline consumption to total 135 billion gallons of gasoline, the exports could be substantial.
Weekly production of US ethanol has topped 950,000 b/d for consecutive weeks for the first time in three years, the most recent EIA data showed. Luciano said he does not see any growth in production capacity in the near future.
"Certainly, this is an industry that's running as hard as it can around 14.7 [billion gallons/year], and you can probably argue that that could be sustainable throughout the year," Luciano said. "If you add more capacity, you're just creating ethanol for export markets. We're very optimistic about ethanol margins being sustained at very good levels."
The estimated production margin for a typical US Midwest dry-mill ethanol plant for the week ended Friday dipped 0.34 cent, or 0.35%, to 94.8 cents/gal, a review of US Department of Agriculture and Platts data showed. With a 2014 weekly average currently slightly above $1/gal, margins are on pace for a record year.
Strong margins and heavy production could continue if the export opportunities are there, Luciano said.
The latest data available from the US Census Bureau shows US ethanol exports soared from January to May at 356.6 million gallons, up 52% compared to the year-ago period.
"This is the time of the year where you should see Brazil being much more aggressive here," Luciano said "We continue to see opening export opportunities and opening markets, so we're bullish for our export forecast."
Worries with drought and the impacts to this season's sugarcane harvest in Center South Brazil should contribute to the increase of US ethanol exports. With a potential risk for a "sudden death" of this year's crop and a sooner end to the harvesting season, a tight domestic ethanol balance is expected.
The risk of running out of cane later in the year could threaten ethanol stocks in the inter-crop season and increment the need for imports. Most recent indications show offers for Anhydrous ANP -- the Brazilian ethanol spec -- at 25 cents/gal premium to Platts Chicago Futures on FOB US Gulf Coast basis for shipment from September onward.
