CoBank: Ethanol industry will diversify in response to COVID-19

By Erin Voegele | July 14, 2020

A new report released by CoBank predicts that the COVID-19 pandemic will cause the ethanol industry to rationalize excess capacity and further diversify as 2021 fuel demand is not expected to fully rebound to pre-COVID-19 levels.

CoBank’s Knowledge Exchange on July 10 published the quarterly report, which is focused on rural industries and the COVID-19 pandemic.

According to CoBank, rural industries are grappling with how to adjust their businesses to remain relevant and sustainable in the face of the COVID-19 pandemic. Agriculture supply chains have been massively disrupted and lost revenue while water and power suppliers have adapted as commercial customers went dark and demand shifted to residential customers.

The report states that the recent rebound in the U.S. economy is real, but cautions that the sharpest post-shutdown economic gains have almost certainly already happened. A long grind to shore up a shaky economy lies ahead, CoBank said in a statement.

One section of the quarterly report focuses specifically on ethanol, noting ethanol production started the second quarter on unstable footing, but recovered later in the quarter.

Demand shock that started in mid-March led to many ethanol producers reducing output or idling plants. Production margins rebounded as economies began to re-open later in the quarter, CoBank said, and ethanol production has begun to recover.

The report notes that overall industry margins have improved, with high-quality, technically efficient operators showing meaningful margin expansion.

Moving into the third quarter, CoBank predicts that the industry will face both challenges and opportunities. As the pandemic resurges in many states, driving and fuel demand will likely be impacted. While the summer travel season typically means increased fuel consumption, CoBank points out that the resurgence of COVID-19 could dampen travel plans.

The report predicts that ethanol fuel demand in 2021 will recover, but represent only 85 percent to 90 percent of pre-COVID-19 levels.

“We conclude that the industry will transform and rationalize excess capacity, and continue diversifying into higher margin co-products,” CoBank said in the report.

A full copy of the report can be downloaded from the CoBank website.