Fill ’er up: Ethanol industry looks to help drive demand, net higher prices

Source: By Amy Bickel, High Plains Journal • Posted: Monday, February 1, 2021

When people hunkered down last spring due to the COVID-19 pandemic, Derek Peine began to make adjustments at the western Kansas ethanol plant he operates.

Stay-at-home orders meant fewer people filling up at the pump. With a majority of the nation’s gasoline containing at least 10% ethanol, demand for the grain-based fuel fell by 45% and prices tumbled to record lows, according to the Renewable Fuels Association. By late spring, 30% of the nation’s 204 biofuel plants were idled. Others, including Peine’s Western Plains Energy plant in Oakley, slashed production.

But after a rough two years for the industry—which, besides COVID, has included trade wars and the effects of an Environmental Protection Agency waiver for small refineries—Peine and others see promise in ethanol’s future. Amid the significant corn surpluses, corn associations are looking at ways to speed up the recovery through the promotion of higher blends.

Last year, Kansas Corn launched the Fueled by Kansas campaign to boost sales of E15—or 15% ethanol. Other states are following suit with similar promotions. The EPA has also lifted a restriction on summertime E15 sales.

The 5% increase in ethanol at the pump could eventually mean a 7-billion-gallon rise in the fuel’s use—or 2.4 billion bushels of new corn demand, Peine said.

“At the end of the day, ethanol has been a huge success for rural America,” Peine said. “Finding a use for corn that is oversupplied—to find new markets for ethanol to increase demand—is big.”

Growing the demand for corn

Like many areas of rural America, ethanol has helped the economy surrounding Oakley, the county seat of Logan County, population 2,800. Western Plains Energy opened in 2004. Today, it employs more than 40 people who help produce 50 million gallons of fuel-grade ethanol from 17.5 million bushels of corn, plus 340,000 tons of wet distillers grain—largely used to feed the region’s cattle industry.

At present, about a third of Kansas’ corn is used in ethanol production, said Josh Roe, vice president of market development and policy at Kansas Corn. He added that studies conducted by Iowa State University indicate approximately 36% of the price of corn is attributed to ethanol.

“So, if we assume $4.70 corn, which is a typical cash price today, roughly $1.69 of that price is directly attributable to ethanol,” he said.

Efforts to boost E15’s presence at the pump gained momentum in June 2019, when the EPA approved year-round sales of the blend, opening up enormous potential for the industry and corn farmers, Roe said. Previous restrictions blocked the fuel’s use during the summer.

Roe said a few pockets of the country still have restrictions in place, and both Kansas and Missouri, along with grain associations, are working to finalize changes to allow summertime E15 sales in the Kansas City metro area. Roe expected regulations to be lifted this winter.

“I’d say it is one of the biggest shining lights we’ve been working on,” said Roe, adding that 50% of the Kansas population is in that region, doubling the potential E15 consumers in Kansas and greatly increasing the potential Missouri customers.

Other states are seeing benefits, too. Amid the impact of COVID, the Iowa Department of Revenue reported in April a 38% jump in E15 sales across Iowa in 2019, totaling a record high at 47.4 million gallons purchased by Iowa motorists.

In Nebraska, more than 30 new stations were added in 2019, according to the Nebraska Ethanol Board. Minnesota, which had just 14 E15 stations in 2015, now has more than 350, according to the Minnesota Corn Growers Association. Minnesota drivers pumped more than 70 million gallons of E15 in 2019, which is more than triple the volume from just two years ago.

Even respected political leaders have endorsed the benefits of using ethanol in much higher volumes. In 2019, Sen. Chuck Grassley, R-Iowa, and former Sen. Timothy Wirth, D-CO, wrote a bipartisan message stating the use of E-15 as a solution to the nation’s energy and climate challenges.

All told, about 2,250 sites are currently selling E15 across the country—a more than 10% uptick from December of last year, according to the biofuel trade organization Growth Energy. Federal grant funding has helped offset costs to retrofit stations with blender technology. In October, the U.S. Department of Agriculture awarded $22 million to 40 recipients in 14 states, including Missouri, Kansas and Nebraska.

In the past year, Kansas Corn has helped nine stations improve pump technology, Roe said.

“It is usually priced $0.05 lower than E10,” Roe said. “You don’t have the drop off of fuel efficiency. It is a cheaper fuel, cleaner fuel.”