Ethanol profits have been off-the-chart, peaking in late March and just recently dropping back, University of Illinois economist Scott Irwin wrote in his latest analysis of the industry in FarmDocDaily.

“The new peak profits were almost $2 per bushel higher than the previous record,” Irwin said. “The historic spike in profits began during the first week in February 2014, peaked at the previously unheard level of $4.50 per bushel in the last week of March, and then dropped back to ‘only’ $1.45 per bushel in the first week of May (note: just divide the bushel profits by 2.8 to convert to gallons).” Irwin’s figures are based on the economic modeling of a hypothetical Iowa ethanol producer using spot prices.

Irwin cites a combination of factors as supporting the 63 percent increase in ethanol prices between January and March at a time when corn prices increased just 8 percent. While profitability has retreated to a still-high $1.45 a bushel, the situation is not likely sustainable. Between 2007 and 2013, ethanol production profits averaged 20 cents per bushel. If this is the normal level, then either ethanol prices will adjust down from the current level of $2.23 per gallon to $1.78, or corn will go up from the current $4.95 to $6.20. “If corn prices now tend to drive ethanol prices due to the E10 blend wall, then one would expect ethanol prices to do the bulk of the adjusting,” Irwin concluded.

Irwin added there caveats in applying the model to the industry as a whole. The spot prices used in the model don’t reflect the impact of forward marketing and hedging strategies, he explained. Other caveats include the substantial variation in production efficiency as compared to the model and the fact that a number of ethanol plants may not have been in the position to take advantage of the high ethanol prices due to rail car shortages.