The road to full ethanol recovery may be a long haul. And as ethanol piles up, some ethanol plants are producing ethanol as a byproduct now.
Peter Meyer of S&P Global Platts says ethanol plants are now producing ethanol not for the fuel, but for the byproducts.
“Ethanol plants are selling a lot of their byproducts given the rise in soybean oil prices, which were somewhat based on Palm oil prices going up, so you have corn oil in demand, and there’s a need for carbon dioxide for all the dry ice needed to move the vaccines.”
Meyer says today, there are only about 30 ethanol plants with the capability to capture the carbon dioxide for resale. But the other product in high demand: DDGs.
“Then you have DDGs, which there is really a high demand for DDGs right now,” adds Meyer. “Your cattle numbers have been kind of flat the last four or five years. But certainly your hog numbers keep going up. So there is that there is that demand for feed.”
As ethanol plants produce for the byproducts, Meyer says those products are incentivizing plants to continue to produce ethanol at all. And as a result, ethanol stocks are piling up.
“Look at these ending stocks numbers for ethanol,” says Meyer. “This is a problem. This is a seven month high here just this week at 22.9 5 million barrels. And you look at this growth over the last four weeks, if that continues over the next seven weeks, which takes us to early February, that is typically a very low ethanol demand period.”
Meyer’s concern is if gasoline demand continues on the track it’s on, and recovery is slow, ethanol plants will see stocks continue to rise to levels the industry saw in the beginning of May. He adds the one factor that could help ethanol recover in 2021 is $70 or $80 oil, a scenario S&P Global Platts sees as unlikely.
So, when could gasoline demand recover to pre-pandemic levels? There’s debate on when that will happen, but Meyer thinks it will take until the final quarter of 2021 - or even the beginning of 2022 - before ethanol demand sees the recovery it needs.
