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Column: U.S. ethanol demand spiked in latest week, but it's still far from normal

FORT COLLINS, Colo. (Reuters) - U.S. fuel ethanol production hit another record low last week, but stocks came off their record highs, their first decline in five weeks, a sign that demand is slowly coming back and that production has either bottomed or is very close to doing so.

AltEn LLC ethanol plant is seen in Mead, Nebraska, U.S., March 21, 2019. REUTERS/Humeyra Pamuk

Global fuel consumption has fallen sharply ever since the coronavirus pandemic escalated in mid-March, sending oil prices into a tailspin. This has delivered an unprecedented blow to U.S. corn demand, as fuel ethanol production accounts for roughly 40% of annual use.

U.S. fuel ethanol production fell 5% on the week to 537,000 barrels per day in the week ended April 24, according to data published on Wednesday by the U.S. Energy Information Administration (EIA). That is an all-time low in records back to June 2010, and the output rate is 48% below the same week a year earlier.

The lowest weekly ethanol output rate prior to this year was 770,000 barrels per day for the week ended Jan. 25, 2013, and the largest inventory was 24.47 million barrels in the week ended July 26, 2019.

U.S. fuel ethanol stocks fell to 26.34 million barrels through April 24 from the previous week’s record high of 27.69 million barrels. That 5% decline was the largest for any week in nearly seven months, an encouraging trend given the recent inventory spike.

The latest data suggests that U.S. ethanol and oil demand has been rising from the early April lows, but the rate of recovery back to pre-COVID levels is unknown. Some U.S. states have at least one more month of mandated stay-at-home, which along with heightened fears of personal risk will continue to impede travel and consumerism in the near term.

So far in April, U.S. corn demand lost by way of ethanol has likely approached 200 million bushels. For reference, the U.S. Department of Agriculture has predicted corn use for ethanol at 5.05 billion bushels in the 2019-20 marketing year ending on Aug. 31.

POSITIVE SIGNS

The latest ethanol stock and production data suggests that average daily U.S. ethanol use was about 730,000 barrels per day in the week ended April 24. That is down 32% from the average usage rate in April 2019 but up 37% from the previous week.

In fact, the usage rate climbed three weeks in a row after bottoming at 476,000 barrels per day in the week ended April 3, though the rate had increased only 8% and 3% in the next two weeks.

The increased rate of ethanol usage throughout most of April is consistent with the figures for U.S. gasoline demand. Finished motor gasoline supplied to the market in the week ended April 24 totaled 5.86 million barrels per day, up 10% on the week.

Supplied gasoline had hit 5.07 million barrels per day in the week ended April 3, the lowest in records back to February 1991. That was also 20% below the previous all-time low recorded in January 1994.

Daily mobility trends published by Apple supports the recent increase in fuel consumption. This past Saturday through Monday, U.S. citizens were driving about a third less than they had been in mid-January, but that is up from a 50% decline during the same period three weeks earlier.

Although U.S. ethanol stocks remain extremely elevated, the supply versus demand balance moved much closer to normal levels in the latest week. At last week’s implied consumption rate, the country had 36 days’ worth of ethanol in storage as of April 24. That was down sharply from the previous week’s supply of 52 days.

Excluding the recent anomaly, the average ethanol supply over the last year has been about 22 days’ worth given the corresponding consumption. The storage topped out at 57 days on April 3, and the pre-2020 maximum was 30 days.

HAND SANITIZER?

Given the drop in fuel consumption, the recent surge in demand for hand sanitizer has led some U.S. ethanol plants to switch some their output to produce a high grade of alcohol required for the sanitary product. But that alone is very unlikely to revive the ethanol industry.

One manager of a Kentucky ethanol plant said that manufacturing ethanol for hand sanitizer at even 10% his normal rate of operation would be a lot.

Just for fun, and to help get an idea of how much fuel ethanol the United States has in storage, if the full April 24 inventory of 26.34 million barrels were completely dedicated to hand sanitizer, that could produce more than 101 billion bottles of standard, travel-sized hand sanitizer.

The calculation uses bottles that hold 2 fluid ounces (59 milliliters) and assumes a 70% inclusion rate of ethanol. That is enough hand sanitizer to provide all 330 million U.S. citizens with 306 bottles each.

The opinions expressed here are those of the author, a market analyst for Reuters.

Editing by Matthew Lewis

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