Growth continues in railroad movements of ethanol, distillers grains — USDA

Rising crude oil prices and continued demand for renewable fuels and distillers grain has kept ethanol production profitable in 2010. Railroads remain the primary mode for moving ethanol and distillers grains, with increased movements consistent with growth in production of ethanol and distillers grains.

According to the U.S. Energy Information Administration monthly and weekly data, U.S. ethanol production in 2010 reached 13.4 billion gallons with plant capacity utilization rates above 95 percent for most of the year. This production level now approaches the 15-billion gallon per year (bgy) cap set by the 2007 Energy Law (EISA/RFS2) for corn starch ethanol by 2015.

Despite the recent announcement by the Environmental Protection Agency (EPA) that automobile models newer than 2001 are now able to use E-15, the 15-bgy corn starch ethanol cap and the slow pace of commercialization of the next generation biofuels, are the primary reasons for the projected slower growth rate of ethanol production in 2011.

During the first three quarters of 2010, U.S. ethanol production reached 9.7 billion gallons, up 23 percent from the same period last year. During that period, the major railroads in the United States moved 274,486 rail carloads of ethanol, up 26 percent from the previous year. Higher utilization of unit trains (trains with 80-100 railcars) and more rail-accessible blending terminals may be the primary factors for this increase.

For most of 2010, shippers of distillers grains continued to increase their reliance on rail service. During the first three quarters of 2010, railroads moved 65,909 carloads of distillers grain, up 32 percent from the same period last year.

The growth in movement of distillers grains by rail has been faster than that for ethanol, possibly due to the growing export market, which relies on rail transportation to deliver the product to port from the ethanol production regions in the Midwest.

During the first 11 months of 2010, exports of distillers grains totaled 8.2 million metric tons, up 47 percent from the previous year.

The outlook for ethanol in 2011 is mixed. Profitability of ethanol production is threatened by rising grain prices due to tighter global supplies. However, EISA/RFS2 mandates and the rising petroleum prices could mitigate price risk, enabling ethanol producers to maintain capacity utilization rates and keep moving the product to market via rail.

Source: USDA Grain Transportation Report, February 10, 2010