Understand the intersection of corn and fuel demand
Imagine 50% of your products’ demand evaporating instantly. That’s essentially what happened to gasoline this past spring, thanks to the COVID-19 pandemic.
“Weekly gasoline consumption during the week of March 13 was 9.7 million barrels per day — a record high for that week of the year,” says David Widmar, economist at Agricultural Economic Insights. “However, within three weeks, implied gasoline consumption fell to 5 million barrels per day, the lowest level of activity for that week in 29 years.”
The same off-the-cliff pattern happened in ethanol, says Jordan Fife, ethanol trading manager with BioUrja. “Production went from 1 million barrels to the lowest ever recorded — 537,000 barrels.”
As a result, ethanol production, which is the use of around 40% of U.S. corn production, dropped in step with gasoline consumption.
“Ethanol came into this situation with too high of stocks,” Fife says. “The ethanol industry did a phenomenal job of cutting quick, much quicker than the oil industry.”
While gasoline consumption has recovered significantly from the March lows, Widmar says, the recovery has been stalled around 90% of the five-year average.
What will it take for gasoline and ethanol consumption to return to normal? Fife says the unemployment rate needs to drop so people resume commuting and vacations. Also, a COVID-19 vaccine will restore economic confidence.
“I think those two will happen in the next year or two,” he says. “The third and hardest part to quantify is how much demand has permanently shifted away due to people working from home and more business done on Zoom calls?”
