On April 9, the WASDE corn ethanol forecast was lowered by an astonishing 375 million bushels to 5.050 billion.

This extraordinary drop is attributed to a worldwide decline in ethanol production and gasoline consumption due to coronavirus disruption. This lower forecast, according to the USDA, also supports more feed and residual use, and is partly offset by an increased forecast for alcoholic beverages. This overall reduction in supply and use caused an escalation in ending stocks, by 200 million bushels to 2.092 billion, and a corn price reduction of .20 to $3.60 per bushel.

For those who produce corn ethanol, the coronavirus pandemic may feel like the last straw in a very long season.

From refinery waivers to trade wars with China, ethanol producers have struggled to stay afloat in the past year. As noted last September, three ethanol refineries closed in Iowa due to decreasing demand. Add to this already perfect storm a sharp decrease in fuel due to March 2020 coronavirus quarantine measures, and it’s no surprise that on March 19 Renewable Fuels Association President Jeff Cooper forecast a 20-25% decrease in ethanol consumption over the short term. When people don’t travel, ethanol demand suffers, and the April WASDE report confirms this diagnosis.

Corn ethanol’s roller-coaster history charts a bigger story of supply and demand.

Still, history tells a larger story. Corn ethanol production began almost 200 years ago, when it was first used to power engines. The first internal combustion engine used ethanol in 1876, and while its use for indoor lighting was later curtailed due to Civil War-era taxes, ethanol was later in very high demand as an alternative fuel during World War II. Made via an efficient yeast fermentation process that leverages corn’s high starch content, ethanol’s production expanded dramatically in the 1970s, when demand for cheaper, more efficient fuels started to grow. Federal and state subsidies followed, and with the turn of the last century, demand for domestic fuel production sparked a steady increase of ethanol production – which kept pace with consumption for almost two decades.

Corn Ethanol chart of demand

Chart from EIA Monthly Energy Review https://afdc.energy.gov/data/10323

In recent years, the corn ethanol consumption gap has widened, due to tariffs and increased corn production.

In 2014, this lockstep trend changed, with production steadily outpacing consumption year over year, due in part to corn’s stable prices and increased production overall. In early 2018, the tariff war with China began to have a dramatic effect on ethanol exports, with a 47% decline occurring over the 12 months following. As of November 2019, ethanol exports had suffered a steep decline, buoyed only by additional interest from Brazil in the latter part of the year.

Despite these challenges, the growing season carries on, and corn ethanol demand should return when America goes back to work.

While ethanol demand is a significant driver for the corn market, the broader ag economy is forever tied to both food and energy. Many of these impacts – including increased demand for wheat during “shelter in place” orders, and the subsequent positive spillover effect for soybeans and corn – does result in a general mood of uncertainty regarding ethanol. But at some point, people will begin traveling again, and ethanol demand will respond. By the time harvest rolls around, we can all hope that this latest valley for ethanol is mostly in the rearview.

For more perspective into ag data science and historical trends, visit Main Street Data Ag Insights & News.


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