Warren Buffet maintains that only when the tide goes out does one discover who was swimming without a costume.  So it is with the ethanol industry that has recently shuttered 41 ethanol plants. This industry has lurched along at the expense of consumers and taxpayers support since its inception by government mandates and ongoing Congressional protection from corn-producing states.

Since the advent of the current Administration, exemptions have been granted to small (and not so small) refiners representing a  significant proportion of the 15 billion gallons of ethanol used to dilute gasoline at the level of 10 percent to produce E-10 fuel. The EPA action is currently under litigation.

COVID-19 restrictions came out from left field in March and sharply reduced gasoline consumption and hence the requirement for ethanol. The Energy Information Agency anticipates that consumption of gasoline in the U.S will reach the lowest level in 20 years during the second quarter of 2020.  This reality coupled with the precipitous drop in the price of crude and reduced export demand has curtailed markets for ethanol.

POET will cease production at three facilities in Iowa and one in South Dakota and will postpone the opening a fourth plant scheduled to come on line in Indiana.  Jeff Broin CEO of POET stated, “across the board biofuel producers and our partners in the farm community face an unprecedented challenge”. He added “our company is working hard to ensure that every biorefinery remains well positioned to support a strong and swift recovery once daily life returns to normal.”

In their press release POET stated that ethanol producers across the country are reducing production proportional to the predicted reduction in demand for automobile fuel. This is estimated to amount to 55 percent of pre-COVID-19 requirements and represents an annualized drop in ethanol demand of approximately 8 billion gallons produced from 2.7 billion bushels of corn.  The USDA WASDE forecast #598 released on March 10th estimated that 5.4 billion bushels of corn, equivalent to 34 percent of the projected 2020 harvest would be used for ethanol.  Given the lower production of ethanol, it can be presumed that DDGS will also be reduced proportionately and that the poultry and swine industries will purchase corn at lower prices.

Ethanol has decreased in price by 38 percent since the beginning of 2020 and on April 7th was trading at $0.86 per gallon. On June 16th 2019, ethanol traded at $1.62 per gallon.  At close of trading on April 7th, May corn closed at $3.32 per bushel.  There has been no positive effect from either the Phase-One trade agreement with China or from the USMCA that will officially come into effect June 1st.