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ethanol plant with corn field in the front Jim Parkin iStock

Ethanol plant idling has ripple effect in rural economies

Estimated 18 plant shutdowns result in 350 million bu. less corn used, 3 mmt drop in distillers availability and thousands of lost jobs.

Over the last year, 18 ethanol plants with a total capacity to produce approximately 1 billion gal. of ethanol are now temporarily or permanently closed, and the ethanol industry continues to point to the Trump Administration handing out small refinery exemptions under the Renewable Fuel Standard (RFS) as the main reason behind the demand destruction.

This is having ripple effects across rural America that will continue unless President Donald Trump stops the bleeding caused by the small refinery exemptions.

During an industry update call with media on Thursday afternoon, Geoff Cooper, president and chief executive officer of the Renewable Fuels Assn. (RFA), said the 18 plants, including three that have permanently shut down, are resulting in a loss of demand for 350 million bu. of corn – equivalent to Michigan’s entire corn crop -- and also are eliminating the production of 3 million metric tons of dried distillers grains (DDGs) used by the livestock industry as a high-protein, low-cost replacement for corn and soybean meal.

“This doesn’t just affect ethanol producers but also those in animal agriculture who’ve been reliant on DDGs,” Cooper said.

Kevin Ross, president of the National Corn Growers Assn., said many corn farmers are starting their fall harvest right now, and the closed plants add another lay of uncertainty to an already tough 2019 when it comes to the significant weather issues. “We need markets; we need crops to move. If [ethanol plants] aren’t working, then farmers have to figure out where to go with the crop,” Ross said.

Cooper added that RFA research has also found that local corn prices fall 15-25 cents/bu., and sometimes anecdotally more, when a plant closes.

RFA chairman Neil Koehler, co-founder and CEO of Pacific Ethanol, said the industry is in a “very dire situation.” Despite some of the early weather woes for the corn season, it still is currently projected to be the fourth-largest crop on record, with a large carryout. Biofuels are an important growth opportunity for that corn.

Brian Thalmann, president of Minnesota Corn Growers Assn., noted that farmers are risk takers by nature, but the RFS was put together as a roadmap for the industry and -- up until recently -- worked by helping encourage investments in new facilities and creating economic growth in rural communities.

“The map is being pulled out from us, and we don’t know which way to go,” Thalmann said. Neither farmers nor shareholders of plants know whether to buy or sell corn or close down the plants.

Cooper added that each of the nation’s 200 ethanol plants employ roughly 40-50 workers, and when plants shutter, workers are sent home furloughed, often without pay. In addition, for every direct job at a plant, the operation of that facility supports an additional four to six indirect jobs in the local area whether from trucking, rail transportation, engineering, maintenance or repair construction jobs.

“When an ethanol plant shuts down, those 18-20 local communities suffer,” Cooper stated.

The White House has touted a proposed solution to help the struggling ethanol industry, and according to some reports, the announcement could come as early as Friday.

The ethanol industry’s main request is that the Trump Administration’s Environmental Protection Agency just follow the law.

“Just implement the law as it is written,” Koehler said, referencing the 15 billion gal. mandate for corn-based ethanol in the RFS. “That will get us back on track” and allow for growth as a company and an industry.

Cooper said anything short of reallocating the exemptions granted in the upcoming 2020 renewable volume obligation (RVO) rule in November will not sit well with those who are suffering from previous exemptions. He said this is something that can get done very quickly and have an immediate impact on the marketplace.

Regarding concerns of whether there are additional opportunities for blending, Thalmann said Minnesota proves that there is no 10% blend wall, since biofuels comprise 12% of the gasoline market. Iowa averages 11%, Cooper added. Prior to the massive increase in small refinery exemptions, back when there was meaningful renewable identification number data, the blend rate was lifted higher. “It was trending upward, had the rug not been pulled out from the industry,” Cooper continued.

In 2016-18, an estimated 4 billion gal. of ethanol demand has been eliminated. Cooper said the industry is not asking that the volume be restored now in the upcoming RVO rule; “What we’re saying is stop the bleeding first,” he said, explaining that this involves a commitment to make sure what happened in the past three years does not happen again and to redistribute the small refinery exemptions in that rule.

“Once we get redistribution in the 2020 RVO, we should look at how we can repair and claw back lost obligation from 2016 to 2018. The RFS reset rule is the appropriate vehicle to do that, with a very strong argument of apply to 2021 and 2022 RFS requirements out of a reset process,” he said.

“We continually anxiously await resolution of this issue and release of this package,” Cooper concluded. “We’re in a very direct circumstance in ethanol and corn industries, and we need this to be addressed and resolved.”

TAGS: Policy Markets
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