Column: Historic plunge for U.S. ethanol output amid struggling gas demand

Source: By Karen Braun, Reuters • Posted: Thursday, September 22, 2022

A sign advertising E15, a gasoline with 15 percent of ethanol, is seen at a gas station in Clive
A sign advertising E15, a gasoline with 15 percent of ethanol, is seen at a gas station in Clive, Iowa, United States, May 17, 2015. REUTERS/Jim Young

NAPERVILLE, Ill., Sept 21 (Reuters) – U.S. corn-based ethanol production fell to unusually low levels last week, a poor start to the new corn marketing year as high prices continue to constrain overall fuel demand.

The Energy Information Administration on Wednesday showed U.S. fuel ethanol production in the week ended Sept. 16 averaged 901,000 barrels per day, off at least 7% from the date’s pre-pandemic normal, the week’s lowest output in eight years and the lightest for any week since February 2021.

That marked a 6.4% drop in production from the prior week, which outside of the early pandemic weeks and the February 2021 winter storm is the largest weekly percentage decline since at least 2010. However, average output in the latest four-weeks remains above the same periods in the prior two years.
Weekly U.S. ethanol production
Weekly U.S. ethanol production

It is not uncommon for U.S. ethanol plants to briefly go offline for maintenance just before the corn harvest comes in. But last week’s decline could have been exacerbated by the serious threat that the U.S. railroads, critical to ethanol transportation, would not be running by Friday.

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The government and labor unions reached a deal last Thursday that averted a railway shutdown, possibly supporting a rebound in ethanol output for the current week. But a near-term recovery may be capped by sagging U.S. gasoline demand and poor corn crop prospects.

EIA data showed average U.S. gasoline demand in the latest four weeks at the lowest level for the period since 1998, down 8% from a year ago and down fractionally from the same stretch in 2020.

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Some analysts have questioned these figures, based on recent traffic trends that might suggest better fuel demand, though high prices have pained consumers for much of this year. The average U.S. gasoline price ticked up on Wednesday after declining for 98 consecutive days, sitting 15% above year-ago levels.

A subpar U.S. corn crop could also disrupt the ethanol industry, especially if harvest results are worse than expected. Forecasts already call for the worst relative corn yields since 2012 after poor weather in western states, though the Department of Agriculture pegs corn for ethanol just 3% below the pre-pandemic average.

USDA earlier this month reduced U.S. corn used for ethanol both in the current and recently concluded marketing years, and the 2022-23 outlook of 5.325 billion bushels is slightly below the 5.33 billion estimated for 2021-22.

That would have ethanol accounting for 37% of total 2022-23 U.S. corn use, its highest share in four years.

Karen Braun is a market analyst for Reuters. Views expressed above are her own.

Editing by Richard Pullin

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As a columnist for Reuters, Karen focuses on all aspects of the global agriculture markets with a primary focus in grains and oilseeds. Karen comes from a strong science background and has a passion for data, statistics, and charts, and she uses them to add context to whatever hot topic is driving the markets. Karen holds degrees in meteorology and sometimes features that expertise in her columns. Follow her on Twitter @kannbwx for her market insights.