FORT COLLINS, Colo. (Reuters) - Fuel demand has made a strong comeback from the coronavirus gut-punch that had most of the world sheltering in place, though it is still notably off expected levels, leaving a lot of uncertainty over how much U.S. corn demand will ultimately be lost because of slower ethanol output.
U.S. fuel ethanol production rose 9% on the week through June 5 to 837,000 barrels per day, which is up 56% from the record low back on April 24 but down nearly 20% from what might be observed this time of year with no disruptions.
Ethanol demand has been rebounding more quickly than production ever since late April, and at least early on, that was likely driven by the need to burn off what were record-high and very anomalous stocks.
Ethanol stocks have since normalized and on June 5 totaled 21.8 million barrels, the lightest since Dec. 27 and down 21% from the April 17 record.
Implied ethanol demand last week hit 933,000 barrels per day, which is an 11-week high and off only about 10% from what would be typical for the time of year. That is also nearly double the record-low use rate from early April.
U.S. gasoline demand also hit an 11-week high through June 5 of 7.9 million barrels per day, up 56% from the April 3 low.
But U.S. consumers likely required about 15% to 20% less gasoline in the first week of June than might be normal, and the slower return of demand for gasoline than for ethanol could be a potential speed bump for ethanol’s full return to pre-virus state.
Ethanol production accounts for almost 40% of corn used annually in the United States, and the U.S. Department of Agriculture has already made steep cuts to its demand outlooks.
In May, the agency pegged corn use for ethanol in the 2019-20 marketing year ended Aug. 31 at 4.95 billion bushels. That was down 475 million bushels from the pre-virus March projection.
Given average corn use rates and the recent ethanol output numbers, about 430 million bushels of corn demand had likely been lost as of June 5. That leaves a very narrow cushion for output recovery to avoid making further cuts to corn use.
USDA will publish new supply and demand figures on Thursday, and analysts will be closely watching the ethanol number. The average trade guess for 2019-20 U.S. ending stocks is 2.15 billion bushels, which would be up about 50 million from the previous month. That may be a prediction for further cuts to ethanol.
Last year’s corn crop is usually a done deal by now, but 2019 production adjustments could also affect old-crop corn stocks on Thursday. USDA tweaked this number last month based on an April re-survey of states that were late to harvest, but any changes in North Dakota were pushed off to June since a lot of 2019 corn was still standing in April.
Based on the latest numbers, North Dakota accounted for just over 3% of last year’s corn harvest, so any production changes on Thursday would have to be drastic to significantly affect carryout.
If North Dakota’s 2019 corn harvest was slashed by 20%, which would be extremely aggressive, that would remove about 90 million bushels of corn from old-crop carryout and thus carry-in for the new year. But 2020-21 corn stocks are already seen easily surpassing 3 billion bushels, so that would not substantially lighten the load.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Matthew Lewis
Our Standards: The Thomson Reuters Trust Principles.