The ethanol industry entered 2022 with considerable momentum after profit margins rose to all-time records during the fourth quarter, according to CoBank’s latest Quarterly Research Report, released in January. Several risks, however, are expected to emerge during the first half of 2022.

The report shows that ethanol production surged above pre-COVID levels during the fourth quarter of 2021, delivering a massive profit margin surge. CoBank said strong consumer demand, higher ethanol prices, and sharply falling natural gas prices offset a modest rise in corn prices during the quarter, noting that fourth quarter profit margins rose to all-time records, currently averaging $1.34 per gallon. Daily operating margins peaked at $1.55 per gallon in late November, according to CoBank.

Despite the momentum with which the ethanol industry has entered 2022, CoBank said it sees several risks emerging over the next six months, including overproduction prompted by current extreme profitability, higher financing costs as the Federal Reserve raises benchmark interest rate targets, and possible economic shocks and/or demand volatility from the omicron variant. In addition, the global transition toward electric vehicles, urbanization, ride-sharing and remote work were identified as long-term challenges that collectively decrease fuel vehicle miles driven.

A full copy of the report is available on the CoBank website.