Since March 13, ethanol production has dropped by about 46%, and idled or reduced production capacity is at or above 50% of normal, according to University of Illinois. Last week production fell to just 563,000 barrels a day.
USDA announced in its April WASDE report ethanol dropped by 375 million more bu. for this marketing year, down to 5.05 billion bu.
“If the corn conversion rate seen in February extended through March and into April, corn used for ethanol through April 17 sits near 3.25 billion bu.,” according to University of Illinois.
When it comes to ethanol use for the rest of the year, it weighs heavily on the pace of economic recovery. Even if the U.S. experiences rapid economic recovery, experts don’t expect ethanol plants to ramp up production quickly.
“Ethanol markets have just collapsed,” says Dan Basse, Ag Resource Company. “We have a lot of ethanol in storage and can go about eight weeks without producing ethanol.”
With ethanol production using about 50% of plants, on a month-to-month basis that’s about 250 million bu. of corn net we’re not consuming, and it starts to add up, Basse continues. “We think by the end of summer, early fall, maybe 1.1 to 1.3 billion bu. of U.S. corn will not be consumed by ethanol.”
“Barring the rapid development of a vaccine, expanded testing or successful treatment, the economic losses will continue to grow. Ending stocks for corn this marketing year look to move higher and corn prices will reflect this reality,” according to University of Illinois.
Corn ending stocks
Reduced ethanol demand is doing nothing to help reduce ending stocks. While there is increased feed use that will help offset some of this demand reduction, it’s not enough to prevent increased corn ending stocks.
“Ag Resource Company now believes it was between 2.7 and 2.8 billion bu. [stocks],” Basse says. “Then, let’s say farmers plant 96 million acres of corn, one million acres less than what NRCS told us last month, that ends up being an ending stock total over four billion bu.”
Farmers haven’t seen that kind of stock total in corn since the mid-1980s, he continues. “That means Chicago futures could make it down between, let’s say, $2.50 to $2.80 per bu.”