E85’s value is looking better and better: can the good times last?

September 25, 2013 |

For several months now, we have been highlighting the favorable spread that is emerging for fuel customers in Iowa who choose E85 ethanol blends, as opposed to gasoline.

New data has been arriving this week from the Iowa Renewable Fuel Association that confirms that the trend is still favorable — in fact, the price discount for E85 customers is growing substantially, in part due to stubbornly high gasoline prices and falling corn prices.

In short, the upside down markets that emerged when corn speculation drove E85 prices out of contention in 2008-09 — and returned in 2012-13 with the intense summer drought in the Midwestern US — appear to be fading. Instead, it is now gasoline that is upside down, economically — and flex-fuel drivers who value their dollars ought to be considering E85 based on the wholesale prices we’re seeing.

The most startling example comes from Siouxland Energy and Livestock Co-op, which is offering an 80 percent ethanol blend, wholesale, for $1.71 per gallon. With gasoline trading at $2.81 this week, there is $2.14 of fuel value in that gallon (after adjusting for ethanol’s lower energy density).

In all, the discount is a whopping 20 percent, or $0.43 per gallon — and that’s after the adjustment for energy value. You can imagine the stampede in towns all over the country were a gasoline retailer to offer $0.43 per gallon lower prices than his competitors.

The trend is not limited to customers of Siouxland Energy. All eight E85 wholesale prices reported by IRFA — from Valero, Quad County Corn Processors, Absolute Energy, RPMG, The Andersons and Heartland Fuel Products, show discounts to gasoline (based on “fuel value” as adjusted for energy density and ethanol content) of between 4 and 20 percent, or nine cents up to the aforementioned $0.43 per gallon.

Three caveats.

One, wholesale prices do not always translate to retail prices. At the closest E85 outlet to the Digest’s home office in Florida, E85 is priced above gasoline in terms of fuel value.

Two, there’s no guarantee that the spread between corn and gasoline will hold — though, with a bumber 2013 corn crop and no relief on gasoline just yet in sight while tensions remain over Syria — the trend could hold for a while.

Three, there’s no evidence of a huge rush to E85 pumps, though sales are sharply up. Based on some 5% of the US fleet consisting of flex-fuel vehicles, E85 is still punching below its weight in terms of share of the Iowa fuel market. More pumps, more flex-fuel vehicles — those are factors which could further stimulate the market.

The bottom line

There’s no need to wait for the infrastructure needed to deploy low-cost natural gas into the transportation fuel market — before enjoying the benefits of low cost fuel. Those considering a change over to CNG, might reconsider the joys of flex-fuel cars and E85.

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