Corn growers suffer ethanol backlash

The ethanol industry is suffering from weaker prices and oversupply.

Farm machines harvest corn for feed or ethanol.

The ethanol industry is suffering from weaker prices and oversupply as the pillar of the farm economy is hurt by regulatory changes and the trade dispute with China.

Producers of the corn-based fuel additive, including Green Plains and Poet, have closed plants over the past year in Indiana, Iowa, Minnesota and other states. Companies such as the grain giant Archer Daniels Midland are scaling back their ethanol business.

“This is probably the worst downturn we’ve seen in the industry’s history,” said Geoff Cooper, chief executive of the Renewable Fuels Association, a trade group for biofuel makers.

Ethanol is a cause in rural America, where roadside signs hail corn farmers’ role in helping the US wean itself off foreign oil.

The federal mandate for oil refiners to blend ethanol into gasoline, established in 2005, helped turn the ethanol sector into a $US28bn ($A41bn) industry and created a major new source of demand for crops. About 38 per cent of corn grown in the US is used to make ethanol, according to the Agriculture Department.

Demand this year has been hurt in part by regulatory exemptions for US oil refiners to blend ethanol into gasoline. The ethanol industry says such exemptions unfairly benefit oil companies at its expense. The Environmental Protection Agency said it weighs refiners’ requests against regulatory requirements.

Also hurting the industry is the trade dispute. China has halted ethanol imports from the US that last year totalled 53.9 million gallons. That is less than 1 per cent of US output but China was the fastest-growing foreign market for US ethanol, according to the Renewable Fuels Association.

The combination of factors has led to increased supplies of ethanol, lower prices for the biofuel and higher losses for producers, according to people in the industry. The resulting plant closures are leading to job losses and reducing corn demand in rural areas where President Donald Trump has drawn strong support.

In Cloverdale, Indiana, farmer Kim Ames sells about three-quarters of his corn crop to a nearby Poet ethanol plant. After Poet said last month it plans to close the plant, Mr Ames said he would have to sell his grain to poultry producers in the Southeast, who tend to pay less.

Ethanol plants can pay higher rates than animal-feed makers because they typically need a guaranteed supply to fulfil supply contracts with gasoline makers and maximise efficiency.

“Ethanol was good for me, it was good for this community,” Mr Ames said.

Ethanol futures fell during most of this summer. Since rising in June, ethanol traded on the New York Mercantile Exchange has dropped 21 per cent to $US1.35 a gallon. Prices for corn, the main ingredient in ethanol, have fallen 21 per cent in that time.

The Fuelling American Jobs Coalition, which represents oil refiners, labour unions and gasoline retailers, said the EPA exemptions granted to refiners hadn’t cut into ethanol sales or prices.

A survey conducted in August by the trade publication Farm Journal after the EPA granted waivers to 31 refiners to reduce their ethanol use found 71 per cent of 1153 farmers polled approved of Mr Trump’s performance, down from 79 per cent in July.

Green Plains’ chief executive Todd Becker, who introduced Mr Trump at an Iowa campaign event in 2016, said the farmer vote was the President’s to lose: “They’re not voting for someone else but they do not have to show up and vote for Trump.”

American Farm Bureau Federation president Zippy Duvall said he had urged Agriculture Secretary Sonny Perdue to address the ethanol industry’s struggles in August: “It’s our job to remind the administration of the risks, and how important it is.”

An EPA spokesman said ethanol production and exports had grown during the Trump administration — to a new high recorded in 2018.

The administration in May allowed the year-round sale of gasoline with a higher ethanol mix, aiming to boost ethanol producers and the farmers who supply them.

Mr Trump said on Twitter last week that he would do more to help the ethanol industry, while also aiding oil refiners.

“It will be a giant package, get ready!” he said.