Drivers returning to the road are expected to lift demand for ethanol. About 40% of the U.S. corn crop goes to producing the gasoline additive, and consumption has plunged amid the pandemic. Now ethanol producers envision a rebound powered by economic reopenings and a potential wave of bioenergy-friendly regulations from the Biden administration.
Corn prices have already climbed about 50% over the past six months, lifted by increased demand from China. That country is buying more row crops in an attempt to bounce back from the African swine fever’s destruction of its hog herds and meet targets set in its recent trade agreement with the U.S. Chinese corn imports in the first two months of 2021 were more than five times higher than a year earlier, German bank Commerzbank AG said in a note last week.
On Feb. 9, corn topped $5.74 a bushel—its highest intraday level since July 2013. The most-active corn contract trading on the Chicago Board of Trade closed Monday at nearly $5.47 a bushel.
U.S. production of ethanol—found in roughly 98% of U.S. gasoline, according to the U.S. Energy Department—hasn’t returned to pre-pandemic levels. Domestic production stood at 922,000 barrels per day for the week ended March 19, the U.S. Energy Information Administration said Wednesday, down from more than a million barrels at this time in 2019.
Now, more drivers are returning to American roads. Around 8.6 million barrels per day of gasoline were delivered to gas stations for the week ended March 19, according to EIA data. That is up nearly 175,000 barrels per day from the previous week, though still down from 8.8 million barrels at this point last year, when the pandemic’s shutdowns left cars parked nationwide. For the week ended March 15, 2019, the gasoline deliveries were 9.4 million barrels per day.
“We expect gasoline and ethanol consumption to move steadily closer to pre-pandemic levels over the next few months as vaccinations expand and people are increasingly able to return to normal activities, barring any unforeseen developments,” said Scott Richman, chief economist with the Renewable Fuels Association.
That recovery could provide an additional source of demand for farmers growing more corn to take advantage of higher prices. “The farmers are really reliant on that 40% offtake,” said Curt Covington, senior director of institutional lending for AgAmerica Lending LLC, which lends to farmers nationwide. “It gives farmers some confidence in their planting intentions for 2021.”
The U.S. Agriculture Department in February projected that farmers would plant roughly 92 million acres of corn in the coming growing season, which starts in April. That would be the most corn planted in the U.S. since 2016. The USDA is scheduled to put out new estimates for farmers’ planted acreage on Wednesday, which might be more than 93 million acres, according to analysts surveyed by The Wall Street Journal.
Others expect a boost from potential Biden administration policies encouraging the use of renewable fuels. The Environmental Protection Agency indicated last month it would step back from Trump administration policies enabling some gasoline producers to sidestep regulations requiring them to blend ethanol into their fuel.
“In the past few weeks, we’ve seen positive indications from the EPA, the first time in awhile,” said Jim Pirolli, head of ethanol operations with Andersons Inc.
Producers are optimistic that a stricter approach toward enforcing the rules will help nurse them back to pre-pandemic health. As many as 73 of the 204 ethanol plants nationwide halted production last year—with more than 50% of the ones that remained open producing at reduced capacity, according to data from the Renewable Fuels Association.
“2020 was an absolutely abysmal year for the industry,” said Geoff Cooper, head of the RFA.
Ingredion Inc. said earlier this year that its Cedar Rapids, Iowa, plant would no longer produce ethanol, pivoting to producing goods such as industrial starch. A spokeswoman for the company cited market conditions at that time as the reason for the stoppage.
Even so, many expect gains in the prices of corn and crude oil—factors supporting the profitability of ethanol production—to yield higher ethanol prices later this year.
Goldman Sachs recently put its price target for corn futures returning to $5.70 a bushel within the next 12 months. In its latest monthly supply and demand report, the USDA forecast that corn usage in the U.S. in 2021 will reach more than 14.6 billion bushels, up 660 million bushels from last year.
“I think the real story on corn is next year if we do not produce a large crop this year and demand does not subside,” said Karl Setzer, a commodity risk analyst with Bloomington, Ill.-based research firm AgriVisor.