Ethanol Could See $10 Billion in Losses

After USDA Ag Relief Leaves Ethanol Out, New Analysis Shows Big Biofuel Losses

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Seventy-three ethanol plants have idled production across the country in response to market disruptions from COVID-19. (DTN file photo)

OMAHA (DTN) -- When it's all said and done, the ethanol industry could see about $10 billion in losses as a result of the COVID-19 economic stall this year, according to a new analysis released Monday by a leading ethanol advocacy group.

Friday evening, USDA announced some $19 billion in relief funds directed to a number of agriculture sectors -- ethanol was not on that list. That's despite 73 ethanol plants now idled and production cuts made at 70 more plants in the past several weeks.

"I've been doing this for 35 years, and we've never seen anything like this," Neil Koehler, CEO of Pacific Ethanol, said during a Renewable Fuels Association press briefing on Monday.

"I've never seen a downturn of this magnitude. It has had a devastating effect on our industry."

Pacific Ethanol has idled 50% of its production at seven plants and has laid off employees, he said.

"This industry has been the engine of growth and vitality in rural American," Koehler said. "We're losing that now. We as a country and an industry, we will get through this."

RFA President and CEO Geoff Cooper said that while the industry was "frustrated" to not receive aid from USDA at the end of last week, there may be other chances going forward.

USDA said ethanol didn't make the cut because the agency had limited funds.

"I think there will be additional rounds of assistance coming from USDA," Cooper said.

In addition, he said the industry is discussing with federal lawmakers the possibility of finding assistance in another round of stimulus funds, and many producers are seeking help from the Paycheck Protection Program through the Small Business Administration.

Also, Cooper said the industry has explored the possibility of the Commodity Credit Corporation providing ethanol producers with funds to make corn purchases once production begins to ramp up again.

SIRE HASN'T SOLD ETHANOL SINCE EARLY MARCH

Mike Jerke, CEO of Southwest Iowa Renewable Energy in Council Bluffs, Iowa, said his company's 130-million-gallon plant is producing at less than 50% capacity as it tries to navigate an oversupplied fuel market.

"As farmers head to planting season, they see their local plant that they rely on for a market for corn is being impacted," he said.

The May contract for West Texas Intermediate crude that is set to expire soon closed in negative territory on the New York Mercantile Exchange on Monday, at minus $37.63 per barrel.

"We look and see what the markets are doing today, and oil is a reflection of commodity markets," Jerke said.

"There's nowhere to store product. We have not sold a gallon since early March."

SIRE is about ready to move its plant into maintenance and will, at some point, make the decision whether to restart, depending on the market, he said.

PLANT "TREADING WATER"

Mick Henderson, general manager at Commonwealth Agri-Energy in Hopkinsville, Kentucky, said his plant has experienced a whirlwind starting with the devastating tornadoes that hit Nashville the first week of March.

Twenty-six people were killed, more than 300 were injured, and more than 70,000 lost power in the storm.

Henderson said his company was well-positioned for a solid year with a surplus of available corn on hand. The Nashville storm sidelined four of the plant's five customers for a week.

Then, the following week, the market began plummeting from COVID-19.

"We're treading water now," Henderson said.

The plant started providing alcohol for hand sanitizer production and to bourbon producers. The state of Kentucky decided only life-sustaining businesses could remain open to stem the COVID-19 spread.

"It inspires and improves the morale for my crew," he said. "That's been a huge strain on employees and the community. The fact I can tell my employees you can be life-sustaining is pretty special."

RFA ECONOMIC ANALYSIS

According to an economic analysis released by the RFA on Monday, more than 70 plants with a combined annual production capacity of more than 6 billion gallons have been idled. About another 70 plants have cut annual production by nearly 2 billion gallons.

"At least 46% of the industry's total production capacity is now offline, and only one-third of facilities are operating anywhere close to capacity," the RFA analysis said.

"This cutback is unprecedented in its depth and speed," the analysis said.

The RFA estimates lower ethanol consumption and high inventories could lead to average ethanol prices of 56 cents per gallon lower from March to December than they otherwise would have been.

"As a result, ethanol sales fall to $12.5 billion in 2020, a 46% reduction from the $23 billion that would have been expected absent COVID-19," the analysis said.

The RFA said the economic effects go beyond the ethanol industry. Ethanol provides a market for two of every five rows of corn, the group said, and more than one-third of the annual sorghum crop.

In addition, the ethanol industry supports 350,000 jobs across all sectors of the economy.

According to an economic analysis by ABF Economics, the ethanol industry contributes about $43 billion to the U.S. gross domestic product, or GDP.

"But based on today's RFA analysis, it is expected that the industry's contribution to GDP could shrink to $30 billion in 2020, nearly one-third less than last year," the RFA said.

"Further, if the scenario in the RFA analysis plays out, the industry would support nearly 280,000 jobs across all sectors in 2020, a reduction of about one-fifth from 2019."

Read the analysis here: https://ethanolrfa.org/….

Todd Neeley can be reached at todd.neeley@dtn.com

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Todd Neeley