The US response to the Covid-19 outbreak could see demand for blended gasoline fall by as much as 20%, triggering a huge reduction in demand for ethanol and reducing demand for thousands of tonnes of corn, market sources told Agricensus on Friday. fair.
Biofuels are required to be blended into road fuel supplies, with ethanol contributing up to 10% of the mix, with falling demand already triggering reports that some production sites have stopped bidding on corn.
“The ethanol world is dominating the corn demand headlines right now – when ethanol plants don’t bid for corn, it scares some people,” said a market source.
“I think US gasoline demand is 400 million gallons/day – I’ve seen estimates say we’re down 50%,” the source said, as stores, schools and businesses close amid attempts to stop the spread of the virus .
“The big decline in energy prices is hurting the US ethanol sector. It will take some time to understand how much the ethanol industry will be affected,” Terry Reilly of Futures International told Agricensus.
Oil, stock and commodity prices have fallen in recent sessions as investors anticipate a huge drop in demand and a sharp slowdown in economic activity.
“Some energy traders are now talking about (gasoline demand) falling by 10 to 20% in the coming months for the US. That’s a big decline for U.S. conventional demand,” Reilly said.
According to the US Energy Information Administration, the US consumes, on average, 389.63 million gallons of finished gasoline every day – with the current Renewable Fuel Standard (RFS) requiring that 10% of the fuel be taken from sustainable fuels.
A drop in demand between 10 and 20% could result in a loss of ethanol demand of about 5.9 million gallons per day – which conservatively equates to a loss of about 50,000 tons of corn demand per day.
If extended beyond two months, this could amount to 3 million tons of demand destruction for corn and 354 million gallons of ethanol.
“Our chief economist looked at monthly peak-to-trough gasoline consumption data from the first Gulf War, 9/11 and the Great Recession (2008), and there were two drawdowns of about 20% and one of 13%.” Ken Colombini of the US Renewable Fuels Association told Agricensus.
A 50% decline in gasoline demand appears “highly unlikely,” but Colombini said the industry lobby group is “aware of the possibility of a significant future impact on gasoline consumption.”
Ethanol
Under the RFS, it is necessary to blend 15 billion gallons of ethanol into the U.S. fuel supply.
Currently, the USDA forecasts corn production of 347.8 million tonnes in the US in the 2019/20 campaign, with 137.8 million tonnes – 40% – forecast for ethanol production.
Around 70 million tonnes have already been consumed by producers, and any major slowdown in demand would likely seriously undermine this outlook as the sector enters the second half of the marketing year.
This would funnel more corn into depleting stocks and exports, weighing on global corn prices.
But there are bigger questions for the health of the U.S. ethanol sector after American producers ramped up production with recovering margins, boosted by the signing of the U.S.-China Phase One trade deal and hopes of new export opportunities.
Daily production data from the EIA shows that ethanol rates since January 1 are 4% higher than the same period in 2019, with margins at almost the same level.
However, finished ethanol stocks reached record levels at almost 25 million barrels – an increase of almost 3% over the same period in 2019.
Source: Agricensus
