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Chick-News.com Poultry Industry News, Comments and more by Simon M. Shane

CoBank Considers Future of the Ethanol Industry

06/27/2020

In a seminar arranged by CoBank entitled Ethanol Sector Readjustment Today - Rationalization Tomorrow, analysts documented and discussed the severe loss in demand associated with COVID-19 restrictions. The 10 percent blend wall coupled with decreased demand for automobile fuel in 2019 resulted in approval of the E-15 blend.  This action does not appear to have saved the industry from over-production.  The export market has not materialized and U.S. producers face competition from Brazil using sugar cane as a substrate.

 

Predicted gasoline fuel demand will increase from the current low level of one billion gallons in 2020 to 2.4 billion gallons in 2021 provided that the new normal involves a reversion to pre-COVID driving habits.  Notwithstanding indirect government subsidies and mandates, CoBank projects that going forward rationalization of capacity is necessary.  Producers with inferior technology, higher operating costs and loan commitments will either have to exit the industry by shuttering plants or through being acquired.

 

CoBank envisages fewer but well-capitalized producers by 2025, all with diverse revenue streams.  Currently available generic products comprise ethanol, dried distillers’ grains (DDGS) and corn oil. Only Poet has implemented QC and branding. Carbon dioxide is either vented or sequestered in soil at present.  This co-product will have to be commercialized to contribute to revenue.  Companies will have to enrich distillers’ grains to compete with soybean meal and other protein sources.

 

In an alternative scenario CoBank envisage low interest rates supporting less-efficient plants.  Survival of these companies will be prolonged if federal grants provide unjustified support to maintain what is generally regarded as an artificial industry incapable of functioning in a free enterprise market.


 
Copyright © 2020 Simon M. Shane