← External Forces: Climate & Resource (all topics)
Spread - ethanol (feedstock to procurement price)
What it is
Oil marketing companies buy ethanol at administered prices differentiated by feedstock - sugarcane juice, B-heavy molasses, C-heavy molasses, damaged grain and maize. The spread between feedstock cost and procurement price is the distiller's margin
DDGS, the distillers' dried grain by-product, is sold as animal feed
Impact on industries
- Assured OMC offtake under contract removes demand risk entirely, which is what made distillery capacity financeable at scale
- DDGS provides a valuable second revenue stream from grain-based distillation, materially improving the economics against molasses routes
- Procurement prices are administered and revised at policy discretion, so the margin depends on a government decision rather than a market
- Grain feedstock competes with food use, and sugar mills with captive distilleries compete for the same OMC allocation with an integration advantage