Farmers struggle as coronavirus hits ethanol market

Plummeting energy demand during the coronavirus pandemic has decimated the ethanol industry. The timing for US farmers couldn’t be worse.

The USDA said earlier this month it would distribute $US16bn in direct payments to farmers . Picture: AP

Plummeting energy demand during the coronavirus pandemic has decimated the ethanol industry. The timing for US farmers couldn’t be worse.

Ethanol production has dropped to a record-low 563,000 barrels a day, the US Energy Information Administration said on Wednesday, and domestic inventories have reached a record 27.7 million barrels as of April 17.

The fall mirrors the collapse of the wider energy industry as stay-at-home orders in response to the coronavirus pandemic have clobbered air travel, driving and public transportation. The US benchmark crude-oil price has dropped nearly 70 per cent since March 1. Ethanol companies were losing nearly 20c on each gallon they refine, price-assessment firm S&P Global Platts said on Friday.

Ethanol producers such as POET, Valero Energy and Archer Daniels Midland have responded by cutting production or closing plants.

For farmers who sold corn to these ethanol plants, the closures come at a bad time. Many corn farmers struggled to stay solvent in 2019 after record rainfall delayed planting and the US-China trade war weighed on commodity prices.

Ethanol demand was also hurt last year after the Environmental Protection Agency granted waivers to 31 small refineries, eliminating a requirement that they blend the corn-based fuel into gasoline.  Ethanol plant closures were expected to reduce domestic corn consumption by 375 million bushels, the US Department of Agriculture said in a report earlier this month. That is one reason the Food & Agricultural Policy Research Institute at the University of Missouri estimates that farm income could be reduced by as much as $US20bn, or 19 per cent, in 2020.

Dennis Verbeck, a corn and soybean farmer in Henry County, Illinois, said he couldn’t afford another tough year. Mr Verbeck, who operates his 2220-acre farm with his brother, was forced to leave 800 acres of his farm unplanted last year after unrelenting rains.

“We had trade issues, we had terrible issues with floods, now coronavirus,” said Mr Verbeck. “Three strikes and you’re out.”

Mr Verbeck’s farm is located near three ethanol plants and an export terminal on the Illinois River. With the ethanol plants closed or buying less corn, he can only sell what remains of his “old crop corn” to the export terminal. He said that was driving down the price he got per bushel.

The grain elevator closest to Scott VanderWal, a corn and soybean farmer in Volga, South Dakota, is bidding $US2.39 for a bushel of corn — 70c below current front-month futures prices and more than a dollar below what Mr VanderWal said was the break-even price for his crop.

Mr VanderWal, who grows 2000 acres of corn and soybeans and raises 950 head of cattle, said he sold all of his 2019 crop in anticipation of the virus hitting the US. But he is concerned he won’t be able to sell all the corn he grows this year if ethanol plants aren’t running full steam.

Slower ethanol production is also making it harder for Mr VanderWal to acquire feed for his cattle, because he relies on an ethanol by-product called distiller’s dried grains with solubles, which is now in short supply.

The USDA said earlier this month it would distribute $US16bn in direct payments to farmers and make $US3bn of agricultural-commodity purchases, with payments by the end of May.