Oil’s Epic Crash Reminds Farmers They’re Also Energy Traders

by Isis Almeida, Michael Hirtzer, and Jen Skerritt (Bloomberg) Oil’s nosedive is sending farmers a stark reminder: they also need to be energy traders. -- Growers have become more vulnerable to energy swings over the past decades as nations from the U.S. to Brazil mandated the use of biofuels. About a third of America’s corn crop is used in ethanol, while Brazilian millers can use as much as 60% of their cane to make the biofuel. Asia’s palm plantations and Europe’s rapeseed crops are largely dependent on biodiesel demand.

As oil suffers its steepest plunge since the Gulf War in 1991 and the coronavirus spreads across the globe, agriculture markets are feeling the pinch. Sugar tumbled as much as 6.5%, palm oil fell 11% and European rapeseed lost more than 3%. Shares of U.S. ethanol maker Green Plains Inc. tumbled the most since 2008 and fertilizer giant Nutrien Ltd. hit a record low.

Oil’s rout — caused by a price war between Saudi Arabia and Russia — is the latest blow to crop markets already hurt by a decline in demand due to the spread of coronavirus that’s keeping people at home. Markets have become more tied together over the past decades and farmers need to watch everything from crude oil to the state of the global economy.

“The coronavirus and drop in crude will impact demand and economic activity and this could be dangerous,” said Michael McDougall, a managing director at Paragon Global Markets in New York. “Farmers have to be cognizant of this.”

U.S. ethanol margins got crushed as cheaper crude makes the biofuel less appealing.

Sugar futures slumped in New York as lower oil prices boost the incentive for millers in Brazil to produce more of the sweetener at the expense of ethanol. Today’s move could mean an additional 6 million metric tons of sugar produced in Brazil this year, according to top producer Raizen.

It’s not all bad news for farmers. Crop prices are still holding relatively well compared to oil and lower energy costs will help U.S. growers as they power tractors to plant this year’s crop. READ MORE

Excerpt from Politico's Morning Energy: WE'RE IN THE UPSIDE DOWN:Chicago gasoline prices fell below ethanol prices on Monday, a rarity for the Midwest, where corn ethanol is cheap and plentiful, according to Tom Kloza, global head of energy analysis for IHS Markit. Cheap ethanol usually helps reduce the cost of a standard gallon of fuel that blended with 10 percent ethanol, and a gallon of 15 percent ethanol usually saves the consumer between 3 and 5 cents. But that won't be true with this price inversion, and the incentive for higher blends of ethanol would vanish. READ MORE