In today’s more volatile agriculture and energy sector(s), ethanol plants are faced with variations in risk exposure. One key ingredient for the ethanol industry to maintain “investor happy” returns is to strive to utilize risk-management techniques properly. Corn and feedstock prices, natural gas prices, co-product prices, ethanol prices and ethanol yields can all have either a positive or negative impact on the margins of the ethanol plant. Therefore, not only is operational risk a factor but, just as in every business, input and revenue price variation is an integral component as well.
INTL FCStone has the tools and personnel that allow it to manage margins in the ethanol industry through its in-depth market intelligence and broad based cash market knowledge in all sectors of the processing cycle. Ethanol facilities are no different than any other margin related business if proper procedures and guidelines are followed. Margin management is the foundation of the FCStone IRMP business model. The crush margin is determined by the ethanol and co-product revenue minus the corn and natural gas input expense. The use of margin can be effective in various situations as a risk management tool specifically designed for the ethanol producer. Establishing margin can entail the utilization of various risk management tools specifically designed for the ethanol producer. Futures and options for corn, natural gas and ethanol are utilized to mitigate margin risk that can fluctuate daily.
The trading of commodities and derivatives such as futures, options, and swaps involves substantial risk of loss and may not be suitable for all investors. Advisory services as well as the trading of futures and options is available through various subsidiaries including but not limited to the FCM Division of INTL FCStone Financial Inc. Public Disclosures for the FCM Division of INTL FCStone Financial Inc. The trading of over-the-counter products or swaps is available through subsidiary INTL FCStone Markets, LLC to individuals or firms who qualify under CFTC rules as an eligible contract participant. Please click here for the full disclaimer