Article: USA – Ethanol demand destruction from COVID-19 forcing plants to idle

COVID-19 related impact on the staggering rise in unemployment (3.3 million people filing for benefits in the 4th week in March) plus the attendant restrictions on movement is invariably resulting in people driving much less than before, thereby reducing demand for transportation fuels - both gasoline and ethanol - according to the study published by economists the University of Illinois on March 26.

The knock-on effect from the demand destruction is that plants beginning to idle or cur production.

The economists Scott Irwin and Todd Hubbs noted that the price of ethanol at the Iowa plant level has declined 26% or 32 cents per gallon (8 cents/litre), since late February.

Using data on COVID-19 restrictions and statistics from the U.S. Energy Information Administration, the economists estimate that U.S. ethanol consumption fell by 143 million gallons (541 million litres) in March, and likely to be down 391 million gallons (1480 million litres) in April and 207 million gallons (784 million litres) in May, for a total estimated reduction of 741 million gallons (2.8 billion litres). At that level of reduction, corn use for ethanol would be reduced by 256 million bushels (9 million tonnes).

Admittedly, the economists stress said that these projections should be viewed with considerable caution, as there is still great uncertainty about the path of the coronavirus pandemic and the length of restrictions necessary to contain the spread.

Lower demand for liquid transportation fuels, including ethanol, is already causing many plants to reduce production or idle. The Andersons announced on March 24 that it will idle its Element ethanol facility in Colwich, Kansas, for an extended maintenance and repair period and will take spring maintenance shutdowns at the four facilities owned by The Andersons Marathon Holdings LLC, a joint venture between The Andersons and Marathon Petroleum Corp.

Rex American Resources announced on March 26 that its NuGen Energy LLC facility in Marion, South Dakota, will be idle until the threat of COVID-19 is reduced and margins increase. The company also said similar steps could be taken at the One Earth Energy plant in Gibson, Illinois, in the future.

Pacific Ethanol announced on March 27 that it will idle more than 60% of its ethanol production capacity by the end of March. Neil Koehler, president and CEO of Pacific Ethanol, didn't specify which of the company's plants would idle or reduce production but said that production would be shut down in an orderly manner with the objective of meeting contractual commitments while minimizing negative cash impacts.

Siouxland Ethanol posted a notice at its website that its facility in Jackson, Nebraska, will suspend ethanol production beginning in April 2020. "The negative impact of the COVID-19 pandemic on gasoline and ethanol demand in the United States is severe," said Nick Bowdish, president and CEO of Siouxland Ethanol, in the notice. "Our company anticipates that total U.S. fuel ethanol production needs to be reduced by at least 50% until gasoline demand recovers."

On March 18, Heron Lake Bioenergy related to the U.S. Securities and Exchange Commission (SEC) that the company will be idling the plant located in Huron Lake, Minnesota. The shutdown is expected to begin on or around March 30 and continue until the completion of the plant's regulatory scheduled annual temporary shutdown of April 29.

Heron Lake Bioenergy also owns 50.7% of the Granite Falls Energy ethanol plant, located in Granite Falls, Minnesota. The company will also idle its operations on or about March 30 and continuing until the completion of the plant's regularly scheduled annual temporary shutdown of April 29.

Cardinal Ethanol LLC, which operates an ethanol plant in Union City, Indiana, filed a notice with the SEC on March 23 announcing that it will cut production by approximately 20% for the foreseeable future. The facility had previously been operating at a capacity of 140 million gallons.

Highwater Ethanol LLC made a similar filing on March 23, announcing it will cut production at its plant in Lamberton, Minnesota, by 20%. That facility had been producing 67 million gallons annually.

Valero is shutting down two of its ethanol plants, one in Nebraska and the other in Iowa. They're also declaring "force majeure" on shipments for dried distillers' grains or corn purchases, which means they won't be able to meet contracted demands because of unforeseeable conditions. The force majeure is because of a lack of storage availability for corn or ethanol as demand for fuel drops and storage remains limited due to the excess supply.

Production has likely been reduced or idled at many more of the nation's 200 ethanol plants. Ethanol production data released by the EIA in the upcoming weeks is expected to give a more complete picture of how COVID-19 is impacting the ethanol industry.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.