Steve Swan in northwest Iowa is uneasy about the future of ethanol and electric vehicles:
“Your perspective on EV’s is insightful, however you perhaps missed the 800-pound gorilla in the room. In 10 years when over half of the American automobile fleet is electric, ethanol demand will be rapidly declining. Throw on top synthetic meats could have taken over half of the market by that point and two of the three legs of corn demand are gone. I farm in NW Iowa and am extremely concerned about the future of corn farming. While there is no better place than where I farm to produce corn and it will probably continue to be produced there indefinitely, many marginal areas might have to come out of production to eliminate enormous surpluses. This process could be very painful with plummeting rents and land values.”
Steve thanks for the input – send your address please. I want to point out his email is from February, before the oil collapse and COVID upheaval. I generally agree with his thinking regarding EVs as a threat to ethanol but think the transition will be much slower. The US automotive fleet has been turning over more slowly than it used to.
Assuming the economy is hammered by the COVID-19 aftermath, I think a 5% number for new vehicles in the fleet is optimistic. Our fleet is about only 4% EVs now. Multiply 5% turnover number by a 10% EV share – double what it is currently - and we can’t get to half the fleet in twenty years, let alone 10. EV sales will have to be much higher to reach that target. The most reasonable estimate I have seen is 7% of the fleet in 2030 will be plug-ins. Meanwhile, plummeting oil prices and lower EV subsidies will also slow the change.
However, gasoline consumption peaked in 2005 and any transition to EVs will speed a decline in gas use even after lockdowns are over. Ethanol demand is directly proportional to gas consumption of course, but it seems new threats to the 10% mandate show up every week. Clearly, agriculture will need to adjust their plans to accommodate a significant loss of demand. This is already underway, and I think the corn market is evidence.
