Ethanol Production Drops to Levels Not Seen Since the Pandemic: What is the Cause?

Ethanol production in the U.S. has slowed the past several weeks and is now at levels not seen since the height of the COVID-19 pandemic.  Production, which usually slows in the fall for plant maintenance, has been running below 1 million barrels per day for several weeks.  However, for the week ending Sept. 16 it dropped to an 81-week low of 901,000 barrels per day, and this week it fell to 855,000 barrels per day.  

Joe Vaclavik with Standard Grain says that is a concern for the market: "It's normal to be weak this time of year but not necessarily this weak. So yes, it's soft demand for ethanol."

Geoff Cooper, Renewable Fuels Association president and CEO, explains, "I think the big reason for that is gasoline demand is down and it's down a lot compared to past years. We’re kind of talking levels that we saw during the pandemic."

Some plants also slowed crush waiting for less expensive new-crop corn, which isn't a surprise, Vaclavik says. "The corn situation is tight, that’s reflected in the basis, that’s not a secret.  Cash markets are really, really strong," he says. 

Additionally, ethanol prices follow energy prices, which have dropped to the January lows. This has pulled plant margins well off the record levels seen just last fall and idled plants in Iowa and Minnesota. Brad Kooima, of Kooima Kooima Varilek: confirms, "There’s at least one ethanol plant here that is closed all together for a little while. Most all the other ones are running slowly because of the lack of profitability, because of where crude oil is and where the cost of corn is."

Cooper adds: "You go back a few months and ethanol was trading for a dollar cheaper than gasoline at the wholesale level.  Today those two are much closer to parity or very close in price."

There have also been logistical issues with the rail and the threat of a strike on Sept. 16 had some plants slowing production because their storage was full.  Cooper says they anticipate improvements ahead, unless the U.S. moves into a  deep recession.  "We know historically when the economy enters recession gasoline demand tends to suffer so we’re watching that very closely," Cooper says.

The slower ethanol demand has been noticed by the trade as USDA lowered corn for ethanol use by 50 million bushels in the September WASDE.