Ethanol Prices Explained

Ethanol prices remained fairly elevated across global trading regions as increased production costs due to rising corn value dominated the market. 

Brazilian mills increase their sugar production capacity to take advantage of sugar’s 12-year price hike. The country accounts for 50% of the global sugar trade which is a boost to the economy. However, the country’s plan to produce local ethanol to counter the rising fuel prices limits its sugar and corn exports.

On the other side of the world, Brazil’s practice sparks inspiration and innovation in India. The government’s push to make corn-based ethanol turned the country into a net importer of corn in Asia. India used to export 2-4 million metric tons of corn but beginning in 2024, the country reduced its exports to more than 150%, supporting the global uptick of ethanol prices. 

Why are ethanol prices fluctuating?

1. Energy Prices

The rise of ethanol prices relies heavily on crude oil and energy prices. Ethanol is a substitute source for gasoline. Thus, an increase in fuel prices will prompt people to purchase much lesser bio-fuel which ramp up the ethanol demand and price.

2. Corn and Other Alternatives

Corn is the main raw material used in ethanol production and any corn price movement will highly influence the price of ethanol. However, research proves that agricultural products like barley, sorghum, sugar cane, and sugar beets can produce ethanol through fermenting sugar starches. These diversified sources contribute to the cooling down of ingredients, leading to tepid ethanol prices. 

3. Global Warming

Ethanol mainly comes from corn and the recent extreme drought and hurricanes that hammered the Midwest reduced corn production. The U.S. drought reduced 13% of Nebraska’s corn yield, reflecting the entire Midwest corn production. Thus, this drives the ethanol price in the market.

4. U.S. Inflation

The U.S. inflation peaked at 9.1% since the pandemic, driving almost all commodities to a sharp market increase including ethanol. This spike is expected to continue until 2024.

5. Biden’s Administration

The rising fuel prices, increased foreign fuel dependency, and the current Russian-Ukraine war made the Biden administration turn to ethanol as a fuel alternative. Thus, leading to lesser ethanol exports from the largest ethanol-producing country (the U.S.) to their counterparts.

Which variables impact the price of ethanol?

• Energy Prices
• Corn Prices
• Global Warming
• U.S. Inflation
• Biden’s Administration
• Ethanol Production
• Transportation Costs

Where does ethanol come from?

Ethanol mainly comes from plants that have high amounts of sugar, starch, and cellulose. Other sources of ethanol are sugarcane, sugarbeets, barley, and wheat.

In the United States, corn is the most common source of ethanol. The ethanol production process involves converting the starch or sugar from the plant into glucose which is then fermented using yeast.

After distilling to remove the impurities from the mixture of water and ethanol, the final product is clear and pure ethanol which is ready to use as a gasoline substitute.

Ethanol production started with the development of industrial-scale distilleries in Europe and North America.

Additionally, its first large-scale production began in the early 20th century when petroleum-based fuel became more expensive. Furthermore, the Ford Motor Company launched Henry Ford Model T, an ethanol-powered vehicle in 1908 which spurred the demand for ethanol.

The practice of using ethanol-blended gasoline occurred in the 1920s and 1930s when fuel demand was high and tight due to WW2.

Today, the U.S. tops the largest ethanol-producing country in the world with an average of 500 million gallons of production per year. Brazil, China, Argentina, Canada, and Thailand follow closely.

What is the future price of ethanol?

Ethanol production is present all year round however, certain seasons record its peak production.

Generally, the corn harvest in the U.S. runs from late summer to fall. During this time ethanol production is plenty and prices are low as there is ample supply. However, the summer driving season from Memorial Day to Labor Day causes a short spike in price. Additionally, ethanol prices are rising steadily thanks to the Biden administration mandate which advocates more bio-fuel blending into gasoline.

The Clean Air Act in the U.S. requires much tighter regulation to lessen smog and other air pollutants. This law takes effect every June 1st to September 15th. These sustainable approaches solidify the need to ramp up ethanol production as the commodity’s production and consumption reduce greenhouse gas emissions by up to 88%.

Also, countries (one example is Brazil) have started increasing tax prices on petroleum-based fuels rather than ethanol. On the manufacturing side, car company makers (Ford, Chrysler, and General Motors) sell fuel-flexible vehicles that use gasoline and ethanol blends (from pure gasoline to 85% ethanol). 

Overall, the price of ethanol comes after several factors such as the cost of its feedstocks (corn and sugarcane), the price of crude oil, and government policies. The EIA expects the price of ethanol to remain relatively stable in the coming years, averaging around $2.30 per gallon in 2030.