FORT COLLINS, Colo. (Reuters) - U.S. ethanol production quickly bounced back after its pandemic-driven crash in late March and April, though both output and use have plateaued in the last month and remain below typical levels, a bit unsettling as far as corn demand is concerned.
Last week’s ethanol output totaled 931,000 barrels per day (bpd), up fractionally on the week, according to data from the U.S. Energy Information Administration. The four-week average hit 927,000 bpd, which is extremely similar to, albeit a hair below, the previous four weeks.
That average sits 12% below the three-year average for the period, slightly worse than 11% in the prior four weeks, but well above the worst dip of 45% observed in the four weeks ended May 8.
Ethanol stocks have also leveled off, settling at 20.4 million barrels last week, a six-week high though the lightest for the time of year since 2015.
The recent data suggests that ethanol demand has not increased at all over the last two months, even though production was still rising and stocks were falling earlier in that time frame. Ethanol usage tends to dip temporarily during the thick of the U.S. corn harvest in September and October, though it usually finishes the year strong.
There is a more promising trend when it comes to U.S. gasoline demand as measured by finished motor gasoline supplied to the market. That hit 9.16 million barrels per day last week, up 6% on the week and the highest since the coronavirus pandemic began, though the four-week average is off 10% from last year.
U.S. gas demand has mostly maintained a positive trajectory since April. It typically peaks in the summer months when driving and traveling are prominent and begins declining in September, so the upward trend may be in jeopardy.
The recent stagnation in production is somewhat concerning for the 2020-21 marketing year that begins on Tuesday since U.S. corn used for ethanol is expected to jump 7% on the year.
Ethanol production accounts for almost 40% of annual U.S. corn demand, so even a slight dip from expected levels can create a large build-up of supply. The U.S. Department of Agriculture predicts ethanol to consume 4.85 billion bushels of corn in the current marketing year ended Aug. 31, and that outlook is probably in the ballpark given recent EIA data.
USDA slates corn used for ethanol in 2020-21 to total 5.2 billion bushels, which would tie for a six-year low when excluding the present year. That would be down 5% from the three-season average between 2016-17 and 2018-19.
The pandemic will likely continue to impact everyday life and especially traveling throughout at least the winter. The more ethanol output is suppressed earlier in the marketing year, the more pressure is on the back portion.
For example, if output averages 8% below normal in the fall and winter months through March, then it cannot drop more than 1% below normal for the remaining five months to prevent eliminating more corn use than USDA currently projects. These are the scenarios that can be monitored once 2020-21 begins and more data becomes available.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Matthew Lewis
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