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As Americans Get Back Behind the Wheel, Better News for Ethanol

Bloomberg writer Isis Almeida reported last week that, “There’s light at the end of the tunnel for the battered American ethanol market, according to producer Green Plains Inc.

For now, coronavirus stay-at-home measures are keeping cars off the road, slashing demand for biofuels. But as economies reopen and people settle into post-pandemic life, they will likely avoid mass transportation and drive more, according to Todd Becker, chief executive officer of the Omaha-based company.

That will help the beleaguered industry, which was already struggling with negative margins even before the virus hit. Add to that an oil price war between Russia and Saudi Arabia that sent crude prices crumbling, and plants across the nation idled or slowed production rates.”

The Bloomberg article noted that, “‘We believe the future could look a little different as companies and individuals look for ways to avoid mass transit and air travel and drive more, which could be a potential tailwind,’ Becker said in an earnings call with analysts on [May 4]. ‘Biofuels will continue to be an important and strategic part of the fuel supply.'”

Ms. Almeida added that, “The U.S. ethanol industry has in recent years been battered by oversupply, a trade war with China and waivers given to small oil refineries exempting them from blending requirements. While President Donald Trump has allowed a 15% ethanol blend rate, the Environmental Protection Agency still has to take some steps to facilitate adoption.”

Also last week, Wall Street Journal writer Rebecca Elliott reported that, “Americans are starting to get back behind the wheel, welcome news for the companies that turn oil into gasoline and diesel.

“Americans Are Pumping Gas Again as States Reopen,” by Rebecca Elliott. The Wall Street Journal (May 8, 2020).

“Fuel makers including Valero Energy Corp. and Phillips 66 have said they expect gasoline demand to continue to rebound after plunging to roughly half of normal levels in early April, as states reopen from lockdowns imposed to limit the spread of the new coronavirus.

As a result, some refiners are looking to produce more gasoline again after choking back output in recent weeks.

The Journal article added that, “‘People have been cooped up, they want to drive,’ Phillips 66 Chief Executive Greg Garland told investors recently, offering a glimmer of hope as the largest U.S. refiners posted their worst quarterly earnings in years.”

And John Kemp noted in a Reuters column last week that, “U.S. gasoline consumption has started to increase in a sign motorists are starting to use their cars more as the economic lockdown eases.”

Mr. Kemp explained that, “Fuel consumption data show an economy that had adjusted to an exceptional economic shock by the middle of April and demonstrated some signs of improving in the second half of the month.

“The volume of gasoline supplied to the domestic market rose to almost 6.7 million barrels per day (bpd) last week, according to estimates prepared by the U.S. Energy Information Administration.

Gasoline supplied has increased for four weeks running, a sign the coronavirus-driven lockdown on personal mobility is starting to ease.”

Meanwhile, DTN writer Todd Neeley reported last week that, “One day after a bipartisan group of 24 United States senators pressed the Trump administration to deny the request of five governors to waive the Renewable Fuel Standard, the Governors’ Biofuels Coalition has done the same.

“In a letter to EPA Administrator Andrew Wheeler on Friday, the coalition said granting a waiver to the states of Louisiana, Texas, Utah, Oklahoma and Wyoming, would inflict further damage to the agriculture and rural America.”

The DTN article indicated that, “The ethanol and oil industries have suffered a double economic whammyfalling oil prices from a Russia/Saudi Arabia oil war and dropping gasoline demand from the COVID-19 shutdown.”

Keith Good

Keith Good

Keith Good is the social media manager for the farmdoc project at the University of Illinois. He has previously worked for the USDA’s National Agricultural Statistics Service, and compiled the daily FarmPolicy.com News Summary from 2003-2015. He is a graduate of Purdue University (M.S.- Agricultural Economics), and Southern Illinois University School of Law.

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