REX's Record Quarter: How Policy and Pipelines Are Reshaping Ethanol

DAYTON, OH – September 02, 2026 – REX American Resources, a leading ethanol producer, recently posted record-breaking second-quarter earnings that sent a clear signal to the market: the rules of the game in renewable fuels are changing. While the headline figure—a staggering jump in earnings per share to $1.06 from just $0.22 a year prior—is impressive on its own, the real story lies beneath the surface. A detailed analysis of the company's performance reveals a powerful confluence of favorable market conditions, strategic execution on long-term projects, and the transformative impact of federal policy. REX's quarter isn't just a financial victory; it's a case study in how innovation is meeting execution to forge a new model for sustainable profitability in the ethanol sector.

A Sector-Wide Surge Fueled by Policy and Margins

The financial strength displayed by REX American Resources is not an isolated event but rather indicative of a broader, positive trend across the ethanol industry. The company's gross profit soared to $53.3 million from $14.3 million in the same quarter of 2025. A significant portion of this, $18.4 million, came directly from the Section 45Z production tax credit, a new federal incentive under the Inflation Reduction Act. However, to attribute the success solely to government support would be to miss the bigger picture. As CEO Zafar Rizvi noted, even when excluding the tax credit's impact, the company's core operational gross profit from its ethanol business increased by a remarkable 144% year-over-year. This points to strong underlying fundamentals, primarily improved crush margins—the spread between the cost of corn and the revenue from ethanol and its co-products like dried distillers grains.

This trend is echoed by REX's competitors. Green Plains Inc. also reported a dramatic turnaround, booking a $93.3 million adjusted EBITDA that included $58.7 million from 45Z credits. Similarly, The Andersons, Inc. saw its Renewables segment achieve record pretax profit, bolstered by $24 million in 45Z credits. This industry-wide uplift demonstrates that while operational efficiency and favorable commodity pricing are crucial, the Section 45Z credit has become a powerful accelerator, fundamentally altering the profitability landscape. It rewards producers not just for volume, but for producing fuel with a lower carbon footprint, creating a direct financial incentive for environmental innovation.

The Carbon Capture Gambit: Navigating the Regulatory Gauntlet

Perhaps the most significant long-term development highlighted in REX's report is the progress of its carbon capture and sequestration (CCS) project at its One Earth Energy facility in Illinois. On August 17, the project received draft permits from the U.S. Environmental Protection Agency (EPA) for three Class VI injection wells. This is a critical milestone in a long and arduous regulatory journey. Class VI wells are specifically designed for the permanent geological sequestration of carbon dioxide, and the permitting process is among the most rigorous the EPA oversees, designed to ensure the absolute protection of underground drinking water sources and the long-term stability of the stored CO2.

The issuance of draft permits moves the project from the drawing board firmly into the execution phase, kicking off a public comment period where environmental groups, local communities, and other stakeholders can scrutinize the plan. While this presents potential for delays or challenges, it is a necessary step toward final approval. For REX, the stakes are enormous. The company has already committed $191.2 million in capital expenditures toward the One Earth CCS project and a related expansion of the ethanol plant. Successful implementation will dramatically lower the carbon intensity (CI) score of the ethanol produced at the facility. A lower CI score not only enhances the company's environmental credentials but also directly translates to higher tax credits under the 45Z framework, which can be worth up to $1.00 per gallon for the lowest-carbon fuels. This project is the epitome of the Patterson Analysis's focus: a complex, capital-intensive innovation facing the real-world challenges of execution, regulation, and public acceptance.

The 45Z Effect: Reshaping Investment and Competitiveness

The Section 45Z Clean Fuel Production Credit, which took effect in 2025, is more than just a line item on an income statement; it is a powerful policy lever actively reshaping capital investment decisions across the entire biofuels industry. Unlike previous subsidies, 45Z is technology-neutral and performance-based, directly tying the value of the credit to a fuel's lifecycle greenhouse gas emissions. This structure creates a clear business case for decarbonization.

REX's nine-figure investment in CCS is a direct response to this policy signal. The potential to unlock higher-value tax credits provides a tangible return on investment for a technology that was once considered prohibitively expensive. This dynamic is creating a new competitive hierarchy in the ethanol market. In the near future, a plant's profitability will be determined not just by its production efficiency and scale, but by its carbon intensity score. Companies that invest in CCS, renewable energy to power their facilities, and other CI-reducing technologies will gain a significant and durable competitive advantage. This policy premium is driving a wave of innovation aimed at producing fuels that are not only renewable but also demonstrably cleaner, pushing the industry toward a more sustainable long-term footing and positioning it as a key supplier for emerging markets like Sustainable Aviation Fuel (SAF).

Building for a Lower-Carbon Future

REX's strategy is a tightly integrated plan for growth. The company is simultaneously expanding ethanol production capacity at the One Earth facility while building the infrastructure to decarbonize that new volume. The expansion, on track to become operational in fiscal 2026, is not merely about producing more gallons; it's about producing more high-value, low-carbon gallons. This dual-track approach is made possible by the company's exceptionally strong financial position. With $379.5 million in cash and short-term investments and no bank debt, REX has the balance sheet strength to fund these long-term, capital-intensive projects internally, insulating it from the volatility of capital markets.

By pairing expansion with decarbonization, REX is building a business model for the next era of renewable fuels. This quarter's record earnings are a testament to the success of that strategy in its early stages, demonstrating how operational excellence, strategic investment in green technology, and savvy navigation of the policy landscape can combine to create exceptional value. The company's journey with its One Earth project will be a critical one to watch, serving as a bellwether for the broader industry's transition from a focus on volume to a focus on value and environmental performance.