Ethanol woes pile up for U.S. corn producers

The 2020-21 U.S. corn supply-demand balance sheet could see carryout blossom as high as 193 million tones

The ethanol sector is going to be hurting for a while and that means depressed grain prices, say experts.

Brian Healy, director of global ethanol market development with the United States Grains Council, estimates world production of the fuel will be down 20 percent in 2020 and likely won’t fully recover until 2022.

The steep reduction caused by COVID-19 travel restrictions and plummeting fuel prices will erase almost all of the gains in global ethanol production since 2013.

U.S. output has tanked to 537,000 barrels per day, a 49 percent drop from pre-COVID-19 levels. And that isn’t likely to rebound any time soon.

“Storage pressures will weigh heavily on the ability of the industry to return to producing again,” he said during a Global Grain webinar.

The U.S. had 26.3 million barrels of ethanol stocks for the week ending April 24, 2020. That is a burdensome supply of the fuel.

There are mounting stockpiles of ethanol all over the world, said Healy.

The U.S. Renewable Fuels Association commissioned a study that is forecasting a US$10 billion drop in sales in 2020. The association warned that the damage extends well beyond the ethanol industry.

“America’s farmers will also be negatively impacted as ethanol typically provides a market for two out of every five rows of corn and more than one-third of the annual sorghum crop,” it stated in a recent press release.

The association says ethanol production could fall three billion gallons in 2020, a 20 percent reduction from what had been expected for the year.

Tim Worledge, managing editor of AgriCensus, said the general equation is that there are 2.8 bushels of corn in every gallon of ethanol.

He said the U.S. ethanol industry was chewing through 2.7 million tonnes of corn per week through mid-March. It is now processing 1.43 million tonnes per week.

So that is 1.23 million tonnes being added to the U.S. corn stockpile every week that the COVID-19 travel restrictions stay in place.

When he looks at the 2020-21 U.S. corn supply/demand balance sheet he thinks carryout could blossom as high as 193 million tonnes, which is a “huge number.”

He expects 2020-21 average cash corn prices to be $3 per bushel or lower.

Healy said about 70 of the 200 ethanol plants in the U.S. are not pumping out any fuel today and another 40 are producing below capacity.

Plants could easily be shut down for eight to 12 months and some of them will never reopen for business.

“This is absolutely going to happen,” he said.

China is the world’s second-largest corn ethanol producer behind the U.S. In 2019, the country produced 5.7 billion litres of the fuel, using nine million tonnes of corn.

China’s national blend rate for the fuel is 2.5 percent. The plan was to increase that to 10 percent in 2020 but the government has backed away from that objective.

Healy said that had nothing to do with COVID-19. It was due to an easing of China’s corn stocks and the lack of access to U.S. ethanol, which faces a 70 percent import tariff in China.

Corn ethanol is new to Brazil but it is growing rapidly. Production doubled three years ago and again last year.

The country produced 1.4 billion litres of corn ethanol in 2019, using 3.4 million tonnes of corn.

Corn ethanol accounts for 5.5 percent of Brazil’s total ethanol production, which is dominated by sugarcane ethanol. But it is expected to grow to a 20 percent market share over the next eight years or eight billion litres of production.

“Corn is eyeing significant expansion in that market spurred by favorable margins in Mato Grosso and surrounding regions,” said Healy.

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