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Column: U.S. ethanol recovery threatened by rising virus restrictions

FORT COLLINS, Colo. (Reuters) - U.S. ethanol production, a main source of demand for domestic corn, has been unusually light ever since March, when the coronavirus pandemic sharply curbed global fuel consumption.

Corn is loaded into a truck to be transported for ethanol production in Kelley, Iowa, U.S., January 21, 2020. REUTERS/Shannon Stapleton

Ethanol output in recent weeks has very slowly chipped away at its deficit versus prior years, but the resurgence of the virus and increasing restrictions, especially just before the holidays, threaten to derail a comeback in fuel demand.

According to data from the U.S. Energy Information Administration, U.S. fuel ethanol output in the week ended Nov. 13 totaled 962,000 barrels per day, down 1.5% from the previous week’s volume, which was the highest since the week ended March 20.

In fact, the latest three weeks were the most productive for U.S. ethanol makers since March. Seasonal trends are part of the reason why output has recently risen, but comparisons with past years suggest that output has continued to improve from its pandemic slump, though the pace is slow.

The four-week average output rose to 960,000 barrels per day through last Friday, down a little more than 8% versus the same period in the prior three years. That departure has been mostly consistent since early October and is the best since the pandemic began. It is also smaller than the 10% average gap observed in September.

The U.S. Department of Agriculture has pegged 2020-21 corn use for ethanol at 5.05 billion bushels, up 4% on the year. That would be down 7.7% on the previous three-year average (2016-17 to 2018-19).

Final 2019-20 corn used for ethanol was a seven-year low at 4.852 billion bushels, some 11% lower than in the prior three years. The 2020-21 estimate is already 3% lower than what was initially predicted six months ago.

Ethanol production has averaged about 9% below recent averages so far in the 2020-21 marketing year that began on Sept. 1, but the recovery pace remains in jeopardy given the rising pandemic volatility.

DEMAND CONCERNS

Ethanol demand has taken on an opposite trend to output. Four-week average use implied by stocks is running 11% below prior years so far in November. That compares with a 9% departure in the previous two months.

That somewhat mimics the trend in gasoline demand as measured by finished motor gasoline supplied to the U.S. market, which last week fell to 8.26 million barrels per day, the lowest since mid-June.

Recently, gas consumption has been about 9% below the levels observed in the same weeks in prior years, consistent with the August and September departures but a little worse than in October. U.S. gasoline demand typically tends to fall into the winter months, but consumption is bolstered late in the year by holiday travel. That is particularly at risk this year as the rise in U.S. coronavirus cases has led to a tightening in restrictions, and many states have advised residents to completely forgo plans for Thanksgiving, which falls on Nov. 26.

Still, major U.S. airline United said last week it expects Thanksgiving week to be its busiest since March and it has added domestic flights to accommodate the expected increase. The airline says it plans to fly 48% of its full schedule next month as compared with December 2019, up from 44% in November and 34% in September.

Aside from holiday travel, everyday travel and commuting have been impacted in the last couple of weeks as an increasing number of schools have turned to virtual learning and office workers are encouraged to work from home if possible.

But it is unknown how long this downturn will last given the recent success of COVID-19 vaccine trials. Pfizer Inc said on Wednesday its vaccine was 95% effective and that it would apply for emergency U.S. authorization in days, meaning the first deliveries could be possible before Christmas.

That follows Monday’s announcement by Moderna Inc that its vaccine was nearly 95% effective, but some experts estimate it still could be at least four to six months before significant levels of vaccination can occur worldwide.

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

Editing by Matthew Lewis

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