U.S. remains major ethanol supplier

Source: By Sean Pratt, Western Producer • Posted: Sunday, October 25, 2020

Canada could overtake Brazil as the top market for American ethanol this year, a situation that western Canadian farmers find frustrating.

Through the first seven months of 2020 the United States shipped 176 million gallons of ethanol to Brazil and 165 million gallons to Canada.

Sales to Brazil have plummeted 23 percent while exports to Canada are down eight percent over that time.

There were no shipments to Brazil whatsoever in June and July.

“They are actively working to keep U.S. ethanol out of their country,” said Ryan LeGrand, president of the U.S. Grains Council.

Brazil has implemented a tariff rate quota (TRQ) on U.S. ethanol. Imports exceeding 198 million gallons annually are subject to a 20 percent tariff.

“We need to continue to diversify markets because our number one market is slipping away before our eyes,” LeGrand said in a webinar organized by the Agricultural Business Council of Kansas City.

Brazil bought 390 million gallons of U.S. ethanol in 2019 valued at US$579 million. The next biggest market was Canada, which bought 331 million gallons of the fuel worth $558 million.

With the way sales are trending, Canada will become the top customer for U.S. ethanol in 2020.

Canada’s national ethanol mandate creates a market for about 2.35 billion litres of the fuel annually. More than half of that mandated demand is being met with imported U.S. ethanol.

There have been no U.S. imports of Canadian ethanol since 2016, according to the U.S. Energy Information Administration, so it is a one-sided flow of the fuel north of the border.

Renewable Industries Canada was contacted for this story but did not respond.

Todd Lewis, president of the Agricultural Producers Association of Saskatchewan, isn’t happy about all the imported ethanol made with U.S. corn.

“It’s frustrating for western Canadian farmers,” he said.

Lewis said U.S. ethanol is cheaper because of subsidies received by growers and others in the production chain.

“You see that constantly with U.S. farm policy that supports their farmers so well,” he said.

Lewis thinks Canada has a golden opportunity to make Canadian ethanol and biodiesel more competitive with U.S. product through the proposed Clean Fuel Standard.

He said the biofuel that is consumed in Canada needs to be made with Canadian grains and oilseeds.

In the meantime, the U.S. Grains Council is working hard to replace the lost sales to Brazil.

Japan is one market it is focusing on. Japan uses ethanol in a product called Ethyl Tertiary Butyl Ether, which is made from ethanol and isobutylene.

In the past, Japan would source the ethanol from Brazil, offload it in Houston, Texas, where it would be converted to ETBE and then shipped to Japan.

U.S. officials convinced Japanese authorities that it would be more environmentally friendly to use some U.S. ethanol. Japan has agreed to allow up to 44 percent of the ethanol content to come from the U.S.

LeGrand said that will soon result in a new 200 million gallon market for U.S. ethanol once Japanese importers exhaust their existing contracts with Brazilian ethanol producers.

Indonesia is contemplating a 10 percent ethanol mandate (E10). If that happens it will create a market for one billion gallons of the fuel. The U.S. could get 200 to 300 million gallons of that business.

“That’s a real possibility,” he said.

China has “walked back” its plans for an E10 mandate. But discretionary blending is still occurring in that market. He expects sales to China to pick up once ethanol prices become more competitive with gasoline.

The U.S. Grains Council is working with India and Philippines to encourage those markets to meet their E10 mandates by importing the fuel because there isn’t enough domestic supply.

Meanwhile, it has convinced Vietnam to drop its tariff on ethanol to 15 percent from 20 percent and is pushing for a further drop to five percent.