Going into 2020, supporters of the U.S. biofuels industry were cautiously optimistic--the U.S. corn and soybean supply was expected to recover from a rain-affected 2019/20 crop year, in which farmers were prevented from planting more than 20 million acres of cropland, primarily in the Midwest, due to extended spring flooding in the region. Domestic demand for both ethanol and biodiesel was expected to remain stable, and biofuel exports were projected to increase slightly, according to presentations made by USDA analysts at their annual Agricultural Outlook Forum held in late February.
The decision by the governors of most U.S. states to impose stay-at-home orders to combat the COVID-19 pandemic, started in mid-March. These actions closed most businesses and restricted non-essential travel, which put a quick end to those expectations. As a result, U.S. vehicle fuel demand is expected to decline by at least 10 percent in 2020, with most of that reduction occurring in the second quarter of the year, the months of April, May, and June. In some regions, gasoline purchases were down by as much as 50 percent during the early portion of the lockdown.
The global energy market was also disrupted by the oil price war waged between two of the global leaders in petroleum production, Saudi Arabia and Russia, as to whether or not the major producers should reduce their output in response to lower demand. When Russia balked at such a move in mid-march, the Saudi government responded by announcing that it would flood global markets with oil priced at $25/barrel, undercutting Russia and most other oil producers. A glut in the world oil market ensued, pushing down prices to negative levels at one point in April because of lack of storage capacity for new production.
In response to the depressed demand for motor vehicle fuels, around 150 ethanol facilities around the country reduced their output, with some reducing shifts and others closing entirely. It is estimated that as of mid-May, U.S. ethanol plants were producing at only 50 percent of their capacity. Many biodiesel facilities reduced output as well, for the same reasons. Some ethanol plants have converted some production lines to make hand sanitizer, which is made primarily of alcohol and has been in short supply in the United States since the crisis began, but that has not made much of a dent in the industry’s negative profit outlook. As of late April, industry analysts estimated that the sector would lose $10 billion in revenue over the full year.
On March 31, USDA released its annual Prospective Plantings report, which projects the total U.S. planted acres of the major row crops produced in the United States. That report was based on farmer surveys collected earlier in the month, and did not reflect the changes in demand for ethanol resulting from the COVID-19 related impacts on Americans driving their cars. That report indicated that U.S. farmers intended to plant 97 million acres of corn and 83.5 million acres of soybeans. With lower prices for both crops driven by softened biofuels demand, it is now believed that one or both of these estimates are too high. The next USDA estimate of these planted acreage figures will be released on June 30th, in the Acreage report.
In late April, governors of five states which produce or process large amounts of oil (Texas, Oklahoma, Wyoming, Utah, and Louisiana) wrote to the Administrator of the Environmental Protection Agency (EPA), requesting a waiver of the RFS requirements in order to ease the regulatory burden on their oil sectors in the current pandemic environment. A number of conservative organizations have sent letters in support of this request. Similar requests by such states in the past have been denied by EPA since it could not be proven that the RFS itself created the economic hardships cited, but the EPA in the Trump administration has shown itself willing in the past to reinterpret rules to favor oil industry interests.
For example, even though the EPA decided not to appeal the federal appeals court decision in January 2020 to restrict its ability to provide RFS waivers to oil refiners to those firms who had received them on a continuous basis since 2010, the EPA has not yet taken any public steps to implement that decision. Instead, the agency is apparently allowing or even encouraging such firms to file retroactively for waivers for past years to try to establish eligibility for future waivers. It has also failed to publicly report the number of such petitions, as is required by law.
The U.S. biofuels industry, like most of the rest of U.S. agriculture, has sought assistance from the federal government to help it recover from its recent financial losses. Their request was not addressed in the $2 trillion CARES Act enacted on March 27th. That legislative package did include a number of provisions aimed at helping farmers and ranchers, described in my blog posted on May 1st, but no assistance was given specifically to the biofuels sector.
In the HEROES Act passed in the House of Representatives on May 15th, House Democrats included the Renewable Fuel Reimbursement Program, which would provide $0.45 per gallon in payment for biofuel produced between January 1 and May 1. That bill has not been taken up in the Senate, and there is no sign that serious negotiations between the two bodies on a new package of federal assistance to mitigate damage to the U.S. economy from the COVID-19 outbreak has yet commenced.