Climbing corn prices is a welcome sign for farmers, but not good news for ethanol plants already strained. Higher corn prices combined with the lingering effects of the COVID-19 pandemic’s impact on gasoline consumption, is a lethal combination that’s forcing the oldest ethanol plant in the country to stop producing ethanol indefinitely.
In a letter to its farmer suppliers, Ingredion informed its suppliers the company has decided to cease ethanol production at its Cedar Rapids plant. The company cited profitably and weak demand as the driving factors behind the decision. Ingredion went on to say ethanol is not core to its growth strategy or key markets and the plant will continue to manufacture corn-based products in the areas of starch, germs and proteins.
As corn prices near $5, margins show it’s not getting any easier for ethanol plants to produce a profitable product.
“Driving habits among Americans have not returned to normal, resulting in reduced demand for gasoline and therefore ethanol, and high corn prices don’t help,” says Joe Vaclavik of Standard Grain. “Q1 ethanol margins are some of the worst we’ve seen.”
Deteriorating margins have played out in ethanol plants for months, heavily weighing on ethanol plants’ margins today. Renewable Fuels Association (RFA) says while most are still operating at near full capacity, some are reducing capacity, while others are making the difficult decision to close.
“Out of the 200 ethanol plants nationwide, we think there are about two dozen that are completely idle today, and probably that many more that have significantly reduced their production rates,” says Geoff Cooper, President and CEO of RFA
“Just this morning, we learned that the oldest ethanol plant in the country in Cedar Rapids is permanently suspending its its ethanol production operations. And I think that’s that’s kind of a sign of just how difficult the market is today.”
S&P Global Platts says ethanol production peaked at 991 MBD in early December, which would be nearly 10% below capacity. The company estimates15 to 20 plants are currently offline.
Even with some plants idled or operating at a reduced capacity, U.S. Energy Information Administration shows ethanol stocks continue to pile up. RFA says with gasoline consumption unlikely to fully rebound this year, the biggest factor that could quickly boost demand for ethanol in 2021 would be increased exports.
