New RFA Analysis: Ethanol Industry Could See $10 Billion in Losses Due to COVID-19

April 21, 2020

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(Renewable Fuels Association) As the COVID-19 pandemic and crude oil glut continue to ravage world fuel markets, U.S. ethanol sales in 2020 could fall by more than $10 billion and the industry’s contribution to gross domestic product (GDP) could drop by nearly one-third, according to a new analysis released today by the Renewable Fuels Association (RFA). The economic losses stem from a “pernicious combination of steep production cuts and sharply lower prices” in response to COVID-19 stay-at-home orders and the resulting collapse in fuel consumption, according to the report.

RFA warned that these economic damages go far beyond the ethanol sector. America’s farmers will also be negatively impacted, as ethanol typically provides a market for two out of every five rows of corn and more than one-third of the annual sorghum crop. Meanwhile, the industry normally supports 350,000 jobs across all sectors of the economy, and contributes valuable co-products like distillers grains, corn distillers oil, and captured carbon dioxide to the food supply chain.

Building on the results from a recent Purdue University study, the RFA analysis estimates that ethanol production could fall by approximately 3 billion gallons in 2020, representing a nearly 20 percent cut from levels that would have otherwise been expected. Mainly due to lower usage and high inventories, ethanol prices could be 56 cents per gallon lower on average from March to December than they otherwise would have been; as a result, ethanol sales fall to $12.5 billion in 2020, a 46 percent reduction from the $23 billion that would have been expected absent COVID-19.

“This sobering new analysis underscores the magnitude of the economic devastation being suffered in the ethanol industry,” said RFA President and CEO Geoff Cooper. “Roughly half of the ethanol industry is shut down today, as fuel demand has collapsed in response to COVID-19, and it is clear we have a long and bumpy road to recovery ahead of us. Corn demand and prices have plummeted as plants have idled, jobs are being lost, and rural communities are being destabilized. On the heels of last week’s agriculture relief package that excluded any assistance for ethanol, we urge the administration and Congress to take immediate action to help the renewable fuels sector survive. We simply cannot afford to lose an industry that has become part of the fabric of rural America.”

In its annual economic impact analysis for 2019, ABF Economics found that the ethanol industry contributed $43 billion to U.S. GDP and supported nearly 350,000 jobs in 2019. 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. 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.

Click here for the report: T he Economic Impact of COVID-19 on the Ethanol I ndustry READ MORE

ETHANOL INDUSTRY FACING “WORST CRISIS IN HISTORY” (Brownfield Ag News)

Ethanol Could See $10 Billion in Losses: After USDA Ag Relief Leaves Ethanol Out, New Analysis Shows Big Biofuel Losses (DTN Progressive Farmer)

USDA: $19 billion COVID-19 program provides no relief for biofuel (Ethanol Producer Magazine)

73 US ethanol plants now idled, 71 significantly reducing operations (Independent Commodity Intelligence Services)

RFA provides update on COVID-19 impacts (Ethanol Producer Magazine)

Ethanol Industry Losses Mount (Energy.AgWired.com; includes AUDIO)

Analysis Says Ethanol Industry Could Lose $10 Billion Due To COVID 19 (WNAX)

US ethanol production could fall by 3 billion gallons in 2020: trade group (S&P Global Platts)

With half the ethanol industry offline, sales to drop $10 billion (Fern's Ag Insider)

Spanish ethanol producers prepare to cut output (Argus Media)

Granite Falls Energy decides to remain shut through April (Biofuels Digest)

Chairman Barrasso Calls on EPA to Reduce Biofuel Mandate on America’s Refineries (Office of Senator John Barrasso (R-WY), chairman of the Senate Committee on Environment and Public Works (EPW))

New Study Projects Dramatic Losses for Iowa’s Hog and Ethanol Industries Due to Virus (Iowa State University)

ETHANOL PLANT CEO’S SHARE STRUGGLES AMID COVID-19 (Brownfield Ag News)

Renewable Fuels Association expects ethanol sales to drop $12.5 billion in 2020 (RFD TV)

America’s Green Fuel Is Likely to Escape Negative Prices (Bloomberg)

Critical factors crippling ethanol plants (Chronicle Times)

US ethanol suffering due to pandemic, oil glut (World-Grain.com)

QC area ethanol plants reduce production while some look to shut down operations (WQUAD8)

ADM to idle two ethanol plants in Iowa, Nebraska (S&P Global Platts)

ADM slows ethanol production at Cedar Rapids plant, could furlough some employees for 4 months (The Gazette)

Terry Taft: Wisconsin biofuel industry needs help (LaCrosse Tribune)

Excerpt from Ethanol Producer Magazine: During the call, three ethanol producers discussed the impacts they’ve seen at their facilities. Neil Koehler, CEO of Pacific Ethanol and chairman of the RFA, said he hasn’t seen anything like the impact of COVID-19 in his 35 years in the ethanol industry. “These COVID-19 impacts are unprecedented,” he said. “There have been plenty of ups and downs, we’ve had our share of volatility as an industry, but I’ve never seen a downturn of this magnitude.”

Pacific Ethanol has idled over 50 percent of its capacity, Koehler said. “Unfortunately, that has included layoffs,” he added. “We’re working through the government programs trying to bring our people back.”

Mike Jerke, CEO of Southwest Iowa Renewable Energy, agreed that impacts from COVID-19 have been unprecedented. “We are operating today, but we are operating at less than 50 percent capacity,” he said.

One problem facing ethanol producers is a lack of storage capacity. Although SIRE is operating at less than 50 percent, Jerke said the facility hasn’t really sold any gallons since early March. “All of this product is going into storage, as we are just attempting to get by until we go into shutdown mode to do maintenance,” he said. “Then we will evaluate at that point whether or not it makes sense to come out of that shutdown or just stay idle.”

Mick Henderson, general manager of Commonwealth Agri-Energy, spoke out his plant’s unique experience due to its location outside of the Corn Belt. Commonwealth Agri-Energy is located in Hopkinsville, Kentucky. The plant was first impacted in early March by the tornadoes that hit Nashville, Tennessee, and surrounding areas. Those tornadoes took four of the plant’s five customers offline for a week. “We started filling tanks and started talking about slowing down or shutting down,” Henderson said. The following week, the coronavirus hit. According to Henderson, fuel demand in Nashville—the company’s primary market—fell by 40 percent within a week. The plant began slowing production. As other plants came offline, Commonwealth Agri-Energy was able to start supplying fuel to customers in Knoxville, Tennessee. However, Henderson noted margins were even worse for Knoxville sales. He said the plant has continued to operate, but is losing money.

Despite hardships being faced by ethanol producers, Jerke said the industry is appreciative of elected officials that are trying to get federal aid to ethanol producers and others in the agricultural community. “It is certainly extremely trying times,” Jerke said, but noted he is looking forward to working through the current situation. “We know it will pass,” he said, adding that he remains “optimistic and confident that better day lie before us.” READ MORE

Excerpt from Office of Senator John Barasso (R-WY): Letters signed by five state governors were sent to Andrew Wheeler, administrator of the Environmental Protection Agency (EPA), calling for relief on account of the severe economic hardship facing refineries.

“I fully endorse the governors’ request to reduce costly biofuel mandates on America’s refineries,” said Barrasso. “As the global coronavirus pandemic continues, fuel demand has dropped dramatically. At the same time, compliance costs under the Renewable Fuel Standard have quadrupled since the start of the year. American refineries are now fighting for their lives. EPA has the authority to reduce biofuel mandates on account of severe economic hardship. If there ever was a time for EPA to use this authority, it is now.”

Background Information: The EPW Committee has jurisdiction over the EPA and the RFS program. READ MORE