Column: More optimism for U.S. corn as ethanol output hits 15-month top

Source: By Karen Braunm Reuters • Posted: Thursday, June 10, 2021

FORT COLLINS, Colo. (Reuters) – The U.S. ethanol industry is operating at near-normal levels for the first time since early 2020 as virus restrictions lift and Americans hit the road for the summer travel season.

Data from the Energy Information Administration on Wednesday showed that U.S. ethanol output reached 1.067 million barrels per day in the week ended June 4, a 15-month high. That marked the fourth consecutive week that production topped 1 million barrels per day.

The four-week average output of 1.036 million barrels is down just 0.4% from the average of the same period between 2017 and 2019. The downside departure in the prior week had been 2.3%, a post-pandemic best at the time. (tmsnrt.rs/350mVmS)

Ethanol production is outpacing demand in the immediate term as stocks jumped a total of 5% in the past two weeks to just under 20 million barrels. Two weeks prior they had dipped below 19 million to the lowest levels since December 2016.

However, stocks remain the lightest for the time of year since 2014 and reasonably far away from maximums. The highest summer stocks were maintained in 2019, reaching 23 million barrels in early July and topping out near 24.5 million later in the month. (tmsnrt.rs/3v5Cm7F)

Implied U.S. ethanol and motor gasoline demand have been improving though they have not yet eliminated the gap with prior years. Ethanol use has recently been as much as 3% below pre-virus levels while gasoline supplied to the U.S. market since mid-April has fluctuated between 3% and 5% below.

Ethanol profit margins have come down from the seven-year highs observed in mid-to-late May when corn futures made a significant downward correction, though they are still above recent averages for the time of year. Most-active Chicago corn futures are up about 5% so far this month.

In the latest U.S. corn marketing year, corn used for ethanol fell 11% from the prior three-year average as the pandemic and the sharp reduction of fuel demand sent ethanol production on an unprecedented downturn. In the current 2020-21 year, corn for ethanol is slated to fall 9% from that same average, but the recent trends might suggest that is slightly too much.

If weekly ethanol output were to average 1 million barrels per day for the next 12 weeks, the U.S. Department of Agriculture might have to add at least 75 million bushels to its estimate of 4.975 billion bushels. That output is below both the recent four-week average and normal levels for the time of year.

USDA has slated corn used for ethanol at 5.2 billion bushels in 2021-22, which starts Sept. 1, and that is about 5% below the pre-pandemic average. It may be too early to adjust the new-crop forecast, but the upside scenario is promising given the recent trend in ethanol output.

 

 

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