Corn prices crush Valero ethanol earnings: Update

Adds executive comments from conference call.

Valero's second quarter ethanol segment earnings tumbled under pressure from higher corn prices, the company said today.

The US independent refiner that is one of the country's largest ethanol producers reported an 84pc drop in operating income for its ethanol business. The company had a 13pc increase in production of the gasoline blendstock for the quarter, mostly from three new plants added in the fourth quarter of last year. Ethanol production averaged 107,000 b/d for the quarter, an almost 13,000 b/d increase from the same quarter of last year.

"The industry is just overproduced for what gets blended today," chief executive Joe Gorder said.

Valero has supported a common 95 RON fuel standard — a higher octane blend with an octane rating above the current US premium grade with no requirements to use ethanol. Ethanol would still be the cheapest way to supply that octane, Valero has said.

The ethanol industry has not supported that proposal, suspicious that it would eliminate its access to the US fuel market. Valero does not support their preferred blend, a 15pc ethanol gasoline called E15.

"There's a genuine distrust, and we are going to have to get over that," Gorder said. "Ethanol is going to be a part of the fuel mix for a very long time."

Corn prices averaged about 2pc higher during the period, at $3.91/bu, according to the company, while New York Harbor ethanol prices fell by 1pc to average $1.54/USG.

"Long term, when you are relying on a crop, these things happen," Valero senior vice president Martin Parrish said on a quarterly earnings call. "Obviously, we are bullish about ethanol long-term."

Valero's renewable diesel business, a joint venture with Darling Ingredients, reported more than doubling its operating income for the quarter thanks to higher production from a plant expansion completed in the third quarter last year. Renewable diesel sales averaged 18,800 b/d for the quarter, up from 9,200 b/d in the same quarter of 2018. Segment operating income increased to $77mn from $30mn in the same quarter last year.