Could $90 Oil Rev Up Corn Demand and Prices Before Spring?
U.S. Farm Report Marketing Roundtable 2 with Peter Meyer and Chip Nellinger 2/5/22
Oil prices continued to surge to jump start February with West Texas Intermediate (WTI) hitting a seven-year high Friday. Prices were fueled by supply disruptions, increasing demand, as well as political turmoil among other major oil producing countries. And it's strong oil prices that typically translates into strong demand for ethanol, and in turn, corn.
WTI oil crossed the $90 mark on Thursday, a milestone that prices haven't seen since October 2014. Brent crude topped the $90 mark in January, and late last week, went above $91.
Even before crude prices topped $90, corn demand showed signs of strength both domestically and abroad.
"Demand is kind of firing on all cylinders," Chip Nellinger of Blue Reef Agri.-Marketing said on U.S. Farm Report this weekend. "I mean, we're cranking right along on the exports. Ethanol has been been strong and hitting the numbers that we need to. While volatility is ahead of us right now, I don't see much of a problem as far as the demand goes, but it's what we don't know that's going to hit us that's so hard to predict right now."
If oil prices continue to climb, could it translate into even higher ethanol demand? Peter Meyer of S&P Global Platts says while in the past, strong oil prices are a good thing for ethanol demand, those two aren't tied as closely together today.
"Ethanol had a great run at the end of the fourth quarter," says Meyer. "I mean, I can imagine that these ethanol guys were having the less buy a private jet conversation around the water cooler. But guess what, you saw it this week with these inventories enormous now as we go into February and March. So, is it somewhat tied? In our opinion, no, because you can not discount these like Ford F150 Lightning numbers and electric vehicles that are coming in."
Ford unveiled its electric truck last year, but didn't reveal the battery power. Recently, it showed the131-kWh battery won't just power the truck, but can also power a home for up to three days. That's estimating the average U.S. household consumption at 30 kWh per day.
And with more electric vehicles and trucks hitting the road, Meyer worries the days of traditional ethanol demand for fuel may soon peak.
"We think it's going to take until 2024 or 2025, so we see that ethanol demand kind of peaking and then just flatlining after that," says Meyer. "Sustainable aviation fuel may be the next next demand segment for ethanol.
But you know, I always worry a little bit about the ethanol guys, because they're kind of like the chicken guys. As soon as there's a profit margin, they just over produce it. And I think that's what we're seeing. Look, I get it, the ethanol guys need to strike when the iron is hot. They did, and now we'll see what they do next."
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