Analysts and farmers have been watching the ethanol market as some plants are still closed or not running at full production.
“It’s no coincidence the big selloff in the corn market occurred right around the time the economy began to shut down,” says Joe Vaclavik, president and founder of Standard Grain. “When people start driving less, it means less demand for ethanol. That’s exactly what we’ve seen.”
Ethanol production is pacing behind a year ago. The numbers are improving but analysts say they need to pick up more.
According to Pro Farmer, gasoline and crude oil futures also limited the market’s upside this week, as did increasing concerns about a second wave of COVID-19 infections.
“We’ve seen six consecutive weeks of higher ethanol production,” Vaclavik says. “Last week we were up 9.5% on the week but still, even after those six consecutive weeks, we are grinding corn for ethanol at only 76% of last year’s pace.”
In its latest Agricultural Supply and Demand Estimates, USDA reports old crop corn stocks are still more than 2 billion bushels, less than the trade guess but an increase from May. USDA also calls for a 50-million-bushel reduction in projected corn used for ethanol.
Vaclavik says ethanol usage is outpacing production right now as well.
“We’ve seen seven consecutive weekly declines in ethanol stocks, and ethanol stocks are back to pre-virus levels,” he explains. “They’re on par with levels we saw a year ago. We’ve seen a big drawdown there. Ethanol stocks are 21% below where they were when they topped out at the peak of the virus. That’s a positive. Gasoline demand in the U.S. is still 20% behind where it was a year ago.”
He believes if gasoline demand increases, ethanol demand will start to improve too.