Shelter in place restrictions are in place across the United States in an attempt to slow and control the spread of the COVID – 19 or Corona Virus. As of this writing there are 122,653 COVID-19 total cases in the US with a reported 2,112 deaths.
The social distancing restrictions have been extended thru April 30, with no certainty if they may have to be further extended. This has resulted in an unprecedented economic contraction in the country.
One implication of the virus-related restrictions is that people are driving much less than before, which means that gasoline and ethanol use are declining. The prices have been further affected by the recent market price reduction in oil prices promoted by a market control and market share battle between Saudi Arabia and Russia.
The price of ethanol has declined $0.36 per gallon or 26% since February, however, as a result of the shelter in place restrictions, the demand of gasoline and ethanol is also been reduced dramatically.
On March 26, The Department of Agricultural and Consumer Economics of the University of Illinois at Urbana-Champaign published a study that attempted to calculate the potential level of ethanol demand destruction over the next few months and the associated impact on corn ethanol use.
The estimated reductions in ethanol use are 143 million gallons in March, 391 million gallons in April, and 207 million gallons in May, for a total reduction of 741 million gallons. Converting these to reductions to corn used to produce ethanol results in a total reduction in corn ethanol use for the three months of 256 million bushels, an amount that would materially increase corn ending stocks for the 2019/20 marketing year.
There is still great uncertainty about the path of the coronavirus pandemic and the severity and length of restrictions necessary to contain the spread.
Looking forward, ethanol still holds the competitive advantage of value as an octane booster. Of all the options available to refiners, ethanol unquestionably has the highest blending octane number and is available at the lowest cost. While ethanol has been used for decades to boost octane, moving forward, the DOE must support the implementation of higher blends and octanes to enable greater fuel economy and significantly reduce emissions.
Numerous studies have shown that the use of high-octane fuels—in the range of 98 to 100 RON—in high- compression engines can greatly improve fuel efficiency and reduce both criteria pollutants and greenhouse gas (GHG) emissions.
The ethanol demand will return once the health crisis subsides. The US Ethanol industry produced 15.8 Billion Gallons of fuel grade ethanol which accounted for 54% of the world’s production of ethanol, with 350,000 direct and indirect jobs supported in 2019.
The US farmers, while enduring the hardship of the Corona Virus situation, are preparing to get back to work, continuing their support for renewable fuels in 2020.
Last week, Reuters polled 26 analysts for U.S. corn and soybean planting intentions. On average they expect 94.328 million and 84.865 million acres, respectively. That would be a 5.2% rise for corn and an 11.5% rise for soybeans.
The combined corn and soybean acres, are estimated at 179.2 million acres. That would be the second-highest in history behind 180.3 million in 2017.
The industry and the markets will respond, stronger than before. We are standing by ready to answer as soon as the health authorities consider it safe.
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