Our market analysts haven’t been as fun as usual lately. Although grain producers have quietly marveled at the relative strength of prices for months now, given the ample carryover figures for most crops, this spring’s brisk start has shifted the anticipation of those supply numbers. So much so that growers are watching the growing dryness with mixed emotions – drought is a lamentable price lifter, although we prefer it would be anywhere but our farm.
These anxieties are also based on unexciting demand projections.
No sector is more uneasy than the ethanol industry. One reason is gasoline demand, which directly determines ethanol use. It may have peaked in the U.S. In fact, we’re back to using the same amount as two decades ago.
Ordinarily, gas demand drops because people don’t drive as many miles, and the recession and COVID certainly affected miles driven. But the gas decline from 2021 to 2022, while small, occurred while people drove more.
The biggest reason is the steady requirement to improve engine mileage. The mileage boosts were mandated, but let’s face it, what manufacturer or consumer is going to go back to gas guzzlers? Those of us who remember single-digit mileage pickups have been hooked on better economy, along with the myriad other engine advances, including horsepower.
This trend took a long time to show up as more efficient vehicles methodically replaced guzzlers in our national fleet – the turnover averages about 7-8% per year. As you can see, real world mileage, reinforce the price sticker numbers which consumers tend to discount. Note the slope of the curves and lack of indication of trend change.
Analysts at Wolf Street, from whom I shamelessly borrowed these graphs, believe we’re seeing the first hint of an EV effect on gas consumption. Gasoline sales have likely peaked, while annual EV sales of all kinds are up to 7% nationally from essentially zero a few years ago.
The other clue is electricity sales have nudged above a 15-year plateau at the same time. To be sure, other factors contribute to this – crypto mining and climate change air conditioning demand for two. However, early monthly numbers for 2023 don’t show any sign of gas sales ramping up and miles driven a.
Ethanol’s mandate fundamentally changed Midwest agriculture. It could do that again in a different way.
