Senators Take Aim at Corn Ethanol

Corn growers be like, “What just happened here?

A few short weeks after a bullish outlook on the future of ethanol, new legislation now has the corn industry feeling a little sheepish.

Refresher: Amid court setbacks less than a month ago that nixed year-round E15 sales and allowed more small refineries to apply ethanol blending exemptions, bipartisan legislators in key farm states introduced bills that would encourage higher ethanol blends. Things were looking up.

But this week, another group of senators has introduced legislation that seeks to fully eliminate the national ethanol blending mandate. We’re not in the Corn Belt anymore.

Citing a host of grievances, including the risk to good-paying oil refinery jobs, the bipartisan group did not mince words.

Senator soundbites:

  • “The federal government forcing Americans to buy billions of gallons of corn ethanol is terrible policy on many levels.” — Senator Pat Toomey (R-PA)
  • “The federal corn ethanol mandate no longer makes sense when better, lower-carbon alternatives exist.” — Senator Dianne Feinstein (D-CA)

Playin’ politics: The day the bill was introduced, the White House announced the administration would delay the annual review process that determines biofuel blending requirements for petro products.

Mum was the official word, but insiders noted the delay was due to President Biden’s political catch-22 that has him stuck between two key blue-collar constituencies: farmers and refinery workers.

Where this goes: Long-term decisions are a ways off, but NCGA President John Linder quickly responded, echoing what is likely on the minds of most corn growers: “This bill is ill-conceived and would have a devastating impact on air quality, the diversity of our energy supply, fuel prices, and rural economies.”

Ingredion Nixes Ethanol at Oldest US Biofuel Plant

A rising tide may raise all ships, but rising corn prices are forcing some ethanol producers to consider abandoning ship. Just ask Ingredion.

The ingredient giant announced this week it will end ethanol production at its Cedar Rapids, IA facility. A letter sent to suppliers made the reasoning plain as day: Gas demand is too low and corn prices are too high.

By the numbers:

→ US Energy Information Administration (EIA) reports 2020 ethanol production averaged 900,000 barrels/day, a 13% drop from 2019.
→ Even as production returned to 87% of the 3-year average after the initial COVID-19 shock, EIA data reveals demand is not recovering to pre-pandemic levels.
→ US corn prices continue to hover around $5, a welcome sign for farmers but another hole in the ship for ethanol.

Where this goes: Gasoline demand is unlikely to increase anytime soon as winter sets in. And turmoil in the Argentina corn export market plus dry South American weather will keep corn prices high. Unless next week’s WASDE report slows market momentum, don’t expect ethanol execs to put away the life vests for now.
+ On the bright side: Not all is lost. The 126-year-old facility in Cedar Rapids has survived fires, floods, and recessions. Ingredion plans to continue producing corn-based industrial goods on the premises.

A Rollercoaster Ride: Ethanol in 2020

2020 has been a bit of a yo-yo for the ethanol industry.

Just last month, U.S. fuel ethanol production hit a 9-month high, averaging 975,750 barrels per day. Anticipation for holiday travel gave the industry positive vibes through November.

But…there’s always a but: Thanksgiving travel was less than stellar and ethanol use for the holiday week was 13% below the three-year average. Blending activity, also a measure of demand, fell to its lowest level since mid-June.

In the same week, inventory of domestic ethanol hit a 24-week high.

Economics 101: We’re now in a stockpile situation.

Where it’s headed: It’s common for ethanol production to increase throughout the last 3 months of the year. But with a global pandemic rearing its head and winter coming, overall fuel demand may dissolve further. Pressure may be mounting for a spring recovery for the corn-based fuel.