Ethanol prices hit historic lows during pandemic

By Lisa Gibson | March 18, 2020

With prices reaching as low as 94 cents per gallon this week, ethanol producers are bracing for difficult decisions, possibly even closures.

Ethanol opened at 95 cents March 18 and has hovered around that price all morning.

“Our country is facing an unprecedented health crisis driving this historic low market environment for biofuels producers,” said Dan Sanders, vice president of Front Range Energy in Windsor, Colorado. “With ethanol prices below $1 per gallon, and economic forecasts of overall domestic fuel demand down by 20 to 25 percent through at least May, producers will be facing tough business decisions. This market downturn was on top of the damage already done to our industry with small refinery exemptions and trade barriers. Our industry must show leadership during this crisis by being disciplined, preserving liquidity and protecting our employees.”

Mick Henderson, general manager of Commonwealth Agri-Energy LLC, said low ethanol prices are also hurting farmers. “The historic low prices are rippling through the entire ag economy,” he said. “We are a 100 percent farmer owned fuel ethanol plant that provides a local market for their corn.  If we don’t make money, they don’t make money.  The farm economy can’t take any more hits.”

Walt Wendland, president and CEO of Ringneck Energy, predicts a slowdown in production. “These are unprecedented times for for our industry,” he said. “For most plants it makes no sense to produce. If gas demand is projected to be down 40 pecent our production need to be down the same as there is not  room for additional  inventory.”

Ron Lamberty, senior vice president of the American Coalition for Ethanol, told Ethanol Producer Magazine: “A steep drop in fuel use due to people staying home to avoid contact with the coronavirus will definitely affect ethanol economics and create a very difficult environment for ethanol producers. Ethanol replaces gasoline, so when gas prices drop, so do ethanol prices. In a ‘normal’ market, consumers typically respond to the lower prices by driving more, and prices slowly go back up. However, we’re not seeing that—nor do we expect to see it—in the current marketplace.” Lamberty added that it’s possible a small percentage of people avoiding mass transit and car pools will drive their own cars. “But more and more, people are being told they don’t need to be anywhere but home.”

“All by itself, the coronavirus is decreasing demand and hammering prices, making the market extremely difficult,” Lamberty said. “But add to it the fight between Russia and Saudi Arabia to see who can flood the market with cheaper oil and you’re introducing artificially low-priced oil product into a market already devastated by flattened demand. That makes a difficult market environment nearly impossible.” He added that some speculate Russia and Saudi Arabia are seizing on the effects of the pandemic to create a “perfect storm” that will put as many “marginal” oil producers as possible out of business.

“If there is any good news for ethanol—or more accurately, less bad news—it’s that it may not drop as far or as fast as gasoline because of its value as a source of the octane, which is needed to make sub-octane v-grade base fuel useable in cars,” Lamberty said. “The ethanol industry is also more efficient than ever, more able to adjust its output and market coproducts in a way that will help the plant minimize the effects of the market downturn and survive. Even so, none of those advantages are likely to offset losses on the sale of ethanol, and we will undoubtedly see a number of plant closures unless we are able to get some kind of assistance from the Federal Government.”

Both Emily Skor, CEO of Growth Energy, and Geoff Cooper, president and CEO of the Renewable Fuels Association, had released statements Monday saying ethanol producers are in challenging times with the pandemic, oil war, trade disputes and small refinery waivers. “Biofuel producers are under desperate strain. Between fuel demand dropping, government uncertainty from refinery exemptions, and an expected economic downturn driven by Coronavirus, a vast number of plants are operating in the red right now and according to the new analysis from University of Illinois, the next two months will continue to be challenging as a result. This is unlike anything we’ve seen before,” Skor said.