Dozens of Ethanol Plants Remain Idle in Early 2021

Jan 19, 2021
By Jerry Perkins
 
The Renewable Fuels Association (RFA) recently estimated that about two dozen of the 200 ethanol plants in the U.S. are idled and another two dozen have reduced their production rates.
 
Additionally, Scott Richman, chief economist for the RFA, noted, “The corn market started moving higher a month ago and has spiked over the past couple of days.” With the higher prices of corn and the worsening impact of the pandemic on fuel consumption, ethanol plant margins turned negative in early December, he said, and had recently started to return to break-even levels when the most recent corn price spike hit. “This latest move in the corn rally will likely have a negative impact on margins,” he stated.
 
Higher corn prices from the most recent rally and their expected negative impact on ethanol industry margins in the New Year are coming on the heels of the ethanol industry’s deep downturn in 2020, Richman said. The RFA estimates that the ethanol industry had $4 billion in foregone revenues from March through November because of the coronavirus.
 
“The ethanol industry is quite resilient, but financial losses were substantial,” he noted.
 
Richman said that it’s a little early to know how ethanol plants are going to react to the recent spike in corn prices. Some plants try to price their corn in advance, he stated, but eventually the higher corn prices are going to work their way through the ethanol processing system and raise feedstock prices. The winter months are also a time when margins for ethanol plants are a little bit weaker because of lower fuel consumption.
 
The most recent statistics from the Energy Information Agency show that ethanol production increased slightly during the week ended January 8 as did ethanol stocks. Ethanol usage is still fairly weak, Richman said, as the increase in coronavirus cases continues to cause a cut back in transportation and gasoline consumption.
 
“We are hopeful that with vaccines being rolled out, gas consumption will return to more normal levels in late spring or over the summer,” Richman said. “But we probably won’t see fuel consumption approach prepandemic levels until late summer and early fall. It’s fair to say that higher corn prices will be negative for the industry given current market conditions. It will take a little time to work itself out.”
 
Kelly Nieuwenheius, chairman of the board at Siouxland Energy Cooperative in Sioux Center, Iowa, said the plant has the capacity to produce at 70 million gallons a year (MGY) but has cut back to 50 MGY.
 
Nieuwenheius, who farms in O’Brien County with two brothers, said the higher corn prices haven’t been as negative on ethanol margins as the Small Refinery Exemptions granted by the Trump Administration’s Environmental Protection Agency and as the cutback in Chinese ethanol imports brought on by the trade war with China.
 
As a farmer, Nieuwenheius said, “I enjoy the higher corn prices. We needed a shot in the arm after these past five years when we’ve had down commodity prices. There hasn’t been a lot of profit in agriculture lately, and this will help. Farmers need the biofuels industry and we need to keep it moving.
 
“Farmers are optimists,” Nieuwenheius stated. “I always say my glass is half full, and we’ll figure out ways to move forward. It’s another hiccup in the road. It’s either feast or famine for the ethanol industry but we survived $8 corn in 2012 and we can work our way through this. The biggest key will be to get the economy rolling.”
 
Nieuwenheius said he thought that higher corn prices might ripple through the ethanol industry and cause more plants to idle production but, he noted, ethanol prices tend to follow corn prices. Ethanol is a high-octane fuel, he stated, and its ability to enhance octane levels when blended with gasoline also helps drive ethanol prices.
 
Agriculture and biofuels also will be part of the discussion on ways to reduce carbon and green house gas emissions, he added.
 
POET, the world’s largest ethanol producer with 2 billion gallons of annual ethanol production capacity, said that all of its 27 ethanol plants have returned to full production. In April, POET idled production at three plants and the start-up of a new plant was delayed. In 2019, POET processed approximately 5% of the U.S. corn crop.
 
Doug Berven, vice president of corporate affairs at POET, said in an email statement that the company “is supportive of healthy grain prices and we encourage a stronger domestic market for grain through increasing access to higher blends of biofuels for all Americans. Biofuels are the catalyst for successful agriculture, and successful agriculture is the key to solving some of the world’s most pressing issues such as climate change, hunger, poverty, and disease.”
 
The email from POET noted that a factor in the higher corn prices is the severe weather conditions that have occurred around the world, including the derecho that swept through parts of Iowa and other Midwestern states last summer wiping out significant amounts of grain production.
 
While the higher prices of corn are a near-term benefit for farmers who are still holding grain, biofuels and agricultural producers would prefer to see the value of grain be reflective of a healthy, consistent domestic market rather than fluctuations due to uncontrollable circumstances, according to the email statement POET released to Successful Farming. “The current decline in ethanol production is due to decreased fuel demand,” the statement continued, “as the country continues to grapple with the ongoing effects of COVID-19, not due to rising grain prices.”
 
Dave Sovereign, chairman of the board for Golden Grain Energy in Mason City, Iowa, said the plant is still producing at full capacity, which is 120 MGY.
 
Higher corn prices have affected Golden Grain’s margins negatively, said Sovereign, and the higher prices certainly could affect ethanol production in the future. Plants that aren’t as efficient or that are located in areas where corn production wasn’t as good last year have had to slow down production, he noted.
 
“As we get into February, that’s usually a slow market for ethanol anyway,” Sovereign explained, because the demand for gasoline seasonally declines. That could mean that ethanol plant profit margins could be lean in February and March, he added.
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