Scale, Organization and Profitability of Ethanol Processing

We analyze the appropriate size and implied profitability of a representative ethanol processing firm. An analysis based on current processing technology and costs with typical conditions in Iowa product and input markets is useful; because unit production costs have declined 30% in current dollars over the last 15 years; and because discovering a suitable size for processing facilities has been an important part of the cost‐reducing process. We apply theoretical plant size rules for a conventional processing business, an integrated producer/processor enterprise, and a processing cooperative. We also introduce a spatial dimension for the corn input market, because ethanol processing facilities can be uniquely large among agri‐processing enterprises. The analysis supports three conclusions. First, the most appropriate size may still be larger than many of the recently constructed plants. Second, ethanol processing is a profitable enterprise; for instance, we calculate a return on capital of 14% for a processing business with optimal scale, current costs and technology, and typical market conditions. Third, total producer plus processor profits can be improved moderately, about $0.04/bushel of corn processed, with an integrated producer/processor enterprise; the producer enterprise sets the local corn price through processing capacity, in a fashion that offsets some potential monopsony power. Nous avons analysé la taille appropriée et la rentabilité implicite d'une usine de transformation d'éthanol représentative. Une analyse fondée sur la technologie de transformation et les coûts actuels tenant compte du marché des produits et des intrants en Iowa s'est révélée utile étant donné que les coûts de l'unité de production ont diminué de 30% en dollars courants au cours des 15 dernières années et que la détermination de la taille appropriée des installations de transformation est un élément important du processus de réduction des coûts. Nous avons appliqué les règles théo(This abstract was borrowed from another version of this item.)