December 16, 2020
The coronavirus pandemic’s induced reduction in gasoline demand and fuel use resulted in 2 billion gallons in reduced ethanol production from March to November. That equals an estimated $3.8 billion in lost revenues for the ethanol industry, and 700 million bushels of corn not ground, according to Scott Richman, economist at the Renewable Fuels Association.
During a call with the media Wednesday morning, Richman says the economic impact to the ethanol industry is continuing. “The impact from this pandemic is not over yet. Even though our industry is very resilient, it’s taken a direct hit from this pandemic.”
Richman says the industry is hopeful vaccines approved and now being distributed will help, but it’s probably not going to amount to a full recovery until late spring at the earliest.
Ethanol production dropped by 45-50% from year-ago levels during April, and then began to climb before stalling out around July 4, he adds. Summer ethanol production settled at 10% below previous year levels, and never returned to normal. In recent weeks, the increase in COVID cases in November and increased restrictions sent production levels to 15% below normal.
Richman says the industry was already experiencing challenges when coming into 2020 due to the small refinery exemptions which reduced 1.4 billion gallons of demand for the 2018 compliance year and 2019 consumption and trade tensions with China.
RFA CEO and President Geoff Cooper also expressed disappointment that Brazil and U.S. trade negotiations failed to reach a deal to avert the implementation of a 20% tariff on all U.S. ethanol imports to Brazil. Brazil had previously been a top market for U.S. ethanol, and if this tariff remains in place, Cooper expects that exports to Brazil will slide considerably.
Since May, U.S. exports to Brazil have fallen to less than 4 million gallons. Over the same time period, Brazil has exported nearly 96 million gallons of fuel ethanol to the United States. A 20% tariff will only further imbalance trade between the two countries.
The Brazilian government’s decision to let the current tariff rate quota (TRQ) expire drew concern from farm and biofuel leaders.
“Today, Brazilian ethanol receives unfettered access into the U.S. market, while U.S. producers are denied reciprocal market access due to a restrictive import tariff designed solely to make U.S. product less competitive. This unjust imbalance must be addressed. We urge the incoming Biden Administration to respond with strength, leveraging various U.S. government tools and authorities to make it clear that protectionist barriers are unacceptable. However, it seems clear from today’s decision that Brazil is more focused on keeping US ethanol out of Brazil than true two-way trade,” a joint statement notes from RFA, Growth Energy, U.S. Grains Council and the National Corn Growers Association.
“We hope to continue working with the Brazilians to get back to a place of free and fair two-way trade,” Cooper says.
Cooper adds that Canada continues to offer optimism for growth in U.S. ethanol exports, as well as India and Mexico. Europe’s elimination of their import duty on U.S. ethanol also created opportunities for increased shipments in recent months which is also promising. “A number of markets around the globe hold a lot of promise of expanding and use more ethanol.
“We’re hopeful to resolve the issue with Brazil, but while we’re doing that, we’re not going to stop trying to develop these markets worldwide as well,” he adds.
Although the ethanol industry has advocated for targeted assistance from the government due to the fallout from the pandemic, Cooper says in recent months it’s become clear the position of the Senate leadership is “come and gone” for targeted assistance.
Erik Huschitt, RFA vice chairman and CEO of Badger State Ethanol, says the ethanol industry clearly has been in a difficult situation. “We’re not wanting help long-term, but what we do need is government help to tear down walls and build bridges.”
Cooper adds that he’s hopeful the incoming administration, including secretary of agriculture-nominee Tom Vilsack, will allow a more inclusive approach to providing assistance to all of agriculture, including the biofuels industry, through the use of funds utilized under the Commodity Credit Corporation authorization.
Cooper says RFA has been engaged in regular dialogue with the USDA all year long to share the organization’s ideas and views on how the CCC could be used to offer support to the industry. He says the most efficient way is a direct payment of some sort to the ethanol processor or producer, rather than indirectly to a farmer in the supply chain, which offers the ability to meet the goal of shoring up lost revenue for the ethanol producer.
There’s been some resistance on the part of the current USDA leadership to use CCC funds in this manner, but when Vilsack previously served as agriculture secretary he saw the CCC as more expansive in its ability to allow USDA to support demand and increase market access of farm products. CCC funds have been used to provide grants for the Biofuels Infrastructure Grant program, which Cooper says goes further downstream to retail gas stations.
Vilsack has been an “outspoken surrogate” for renewable fuels and called for USDA to utilize CCC authorization earlier this year to provide assistance to the industry.
“It’s been a wild year to say the least,” says Cooper. “I think I speak for the entire ethanol industry that we are not sad to say goodbye to 2020.”
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