Large Ethanol Shipments Set Sail; Why China May Be Testing the Waters

Source: By TYNE MORGAN, Ag Wed • Posted: Wednesday, March 10, 2021

More than a month after news broke China committed to its largest ethanol purchase ever, some of those exports have started to set sail.

Reuters reported three ships carrying ethanol were heading to China from the U.S. Gulf Coast. The report said the shipments may surpass the total amount of U.S. ethanol that China imported last year, a positive development for the U.S. ethanol industry.

Renewable Fuels Association (RFA) president and CEO Geoff Cooper confirmed the news, calling it a ‘shot in the arm’ for the ethanol industry.

“We’ve spoken to several sources in the trade who have confirmed this purchase by China,” said Cooper. “We believe these three ships could be carrying as much as 28 million gallons, which would be more than China imported in the entirety of 2019 and 2020 combined. While this is great news and provides a timely shot in the arm to the ethanol market, we know how fickle and volatile exports to China can be, meaning it is more important than ever to continue building ethanol demand in the domestic market and in other countries around the globe.”

The U.S. Grains Council says this isn’t the first shipment of U.S. ethanol this year. USG confirmed between November 2020 and January 2021, the United States has already exported nearly 44 million gallons to China.

North Dakota State University Extension crop economist Frayne Olson said China is testing out the waters to see how difficult or easy exporting a large amount of ethanol will be from a government regulations standpoint.

“Historically, Chinese buying habits show they tend to come in and buy something and kind of test the system,” said Olson. “They test the not only the US. system by sourcing contacts, testing the mechanics to make sure the product gets delivered to ports at the right time, but also testing their own internal systems as far as the paperwork and the certification, and all of the government regulations that they have to deal with in China.”

Olson thinks if this first export run goes well, it could open up the door for more exports this year.

“I do think this is testing the system to say, ‘How complex is this going to be? How difficult would it be for us to buy ethanol from the U.S.?’ And again, it’s not just looking at the U.S. system, but also looking at their internal system. If this works pretty smoothly? You know, i think that does open up the door for more possibilities,” added Olson.

If the regulatory hurdles prove to be a burden in shipping ethanol from the U.S. to China, Olson thinks the opposite could happen.

“However, if it gets to be a lot of red tape, if this is really a complex process, if it doesn’t go very well, if the system’s not really set up to handle it well both on the U.S. side and or the Chinese side, maybe they will say, ‘Well, this is this may not be worth it,’” said Olson. “So, I do think this is really a test case.”

In January, an ADM investor call revealed China committed to buy 200 million gallons of ethanol during the first six months of this year, which would set a new annual record.