U.S. Ethanol Market Sees First Sales Decline in Decades: Lower U.S. Demand, Plunge in Exports Made for Rough 2018.

March 18, 2019

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by Jim Spencer and Mike Hughlett (Star Tribune) ... As production increased and sales to foreign countries rose to record levels, profits went down roughly 20 cents per gallon. ... The domestic market for ethanol had stopped growing at the same time production hit a new record.

Figures from the U.S. Energy Information Administration show that domestic ethanol sales dipped slightly in 2018, the first decrease in two decades.

The ethanol industry largely blames the drop on an unusually large number of blending waivers that the Environmental Protection Agency passed out to oil refineries in 2017. The waivers absolve smaller refiners from federal standards that require them to blend ethanol with gasoline.

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In Benson, a city of 3,000 in central Minnesota, Friese (Chad Friese, CEO and general manager of the Chippewa Valley Ethanol Co.) pronounced himself “frustrated” that the federal government “can’t find policies that are consistent with renewable fuels.”

Economists said the wave of waivers may be undercutting ethanol demand and prices, though any effect is hard to measure. Other factors are at work, too, in the ethanol’s industry’s malaise, particularly the loss of expected exports to China due to trade tensions.

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Some Minnesota-based ethanol companies reported losses last year, according to U.S. Securities and Exchange Commission (SEC) filings.

For instance, Highwater Ethanol in Lamberton, Minn., lost $6.2 million its last fiscal year, its first net loss since 2012. The company lost another $2.7 million during its first quarter, which ended Jan. 31. Lower ethanol prices were a key reason for the red ink, according to SEC filings.

Ethanol’s weakness has hit companies big and small.

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Meanwhile, ethanol inventories are near a one-year high, federal data shows, and prices — which started nose-diving 2017’s last quarter — are still in the tank.

In 2018, the annual average ethanol rack price at Omaha averaged $1.23 per gallon, the lowest since 2002 when it hit $1.12. In January and February of 2019, the average rack price was at or below $1.12.

To make matters worse for the ethanol industry, the price of oil and gasoline plummeted in 2018’s fourth quarter. The market for ethanol, which usually is a 10 percent blend in gasoline, is often tightly tied to what happens at the gas pump.

Retaliatory tariffs placed by China on U.S.-made ethanol — after the Trump administration taxed many Chinese imports — was a blow to the industry, said Jim Stark, head of investor and media relations at Omaha-based Green Plains. The company, one of the nation’s largest ethanol producers, operates plants in Fairmont and near Fergus Falls.

The ethanol industry expected 200 million to 300 million gallons of exports to China in 2018, Stark said, but only got around 50 million before the tariffs kicked in. READ MORE

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