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For Ethanol, Conditions Are Changing And Positive

Jun. 01, 2020 1:15 AM ETAGRO, FUE, GPRE, ALTO, XLE2 Comments


  • Post record lows seen in April, gasoline demand has rebounded in recent weeks and might likely improve from here, with all 50 states having gradually re-opened.
  • Ethanol production in April, which had fallen c.46% below the long-term average, continues to be adversely affected, with only c.30% of the country’s 204 plants running at normal capacity.
  • Other potential tailwinds include regulatory support for higher ethanol content in fuels and opportunities in the export market, especially in some of the previously lost markets of China and Europe.
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"It seems that the worst may be behind us" - Geoff Cooper, Renewable Fuels Association

Here’s a little stat that surprised me the other day - apparently, 80% of US gasoline consumers are unaware of the fact that ethanol is included in this fuel! Well, that’s according to a study conducted by The Renewable Fuels Association. That little trivia aside, I’ve been watching developments in this biofuel segment over the last few months and I can see that economic conditions here are now turning for the better. And if you follow me on Twitter or subscribe to The Lead-Lag Report, you’ll know that I’ve always been guided by conditions, above all.

So, what are these conditions in the ethanol segment that have caught my attention? Let me elucidate.

COVID-19 impact and developments since

Whilst ethanol also has some industrial applications, in the US, it is primarily used as a blending agent in gasoline. As with most other industries, the ethanol industry was grossly affected by the pandemic conditions in the spring season, precipitated by stay-at-home mandates which saw gasoline demand plummet.

Source: Pacific Ethanol Inc.

To put things into perspective, the average weekly gasoline consumption over the last 5 years (from 2014-2019) was 9.12 million barrels. By the second week of April, demand had crashed to 5.08 million barrels, down by a whopping 44%. This resulted in more than 150 ethanol manufacturing units in the US coming to a standstill. Weekly gasoline production, which had averaged 997,000 barrels a week for the last 5 years (2014-2019), dropped by 46%, to 537,000 barrels a week, by late April.

However, in recent weeks, I have been somewhat encouraged by the production and demand numbers in the ethanol space and think a bottom may now be in place. Firstly, with all 50 states

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This article was written by

Michael A. Gayed, CFA profile picture
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Comments (2)

squirrl22 profile picture
Overall pretty good, but a couple missteps here: 1. The House Covid bill that grants .45 cents /gallon to ethanol companies is so full of surplus graft, it is DOA in the Senate.
2. Ethanol companies can ramp far faster than Neil led on in the PEIX call- plants regularly go down for annual routine maintenance for 2-3+ weeks per year, and it only takes a week or so to get them back up and running.
3. China has clearly signaled they have no intention of honoring their trade agreement, so forget ethanol exports to China.
4. The level of surplus Ethanol in storage is still HUGE, and even with the ramp up in demand, will take well into 2021 to bring down to a reasonable level..
5. You need to explain to your readers what is happening to the Brasil ethanol market, because it has a major impact on the USA export market.
krk profile picture
02 Jun. 2020
Any opinion on ADM which gets 30% of its operating profits from Ethanol?
Has been planning to spinoff its ethanol biz but not sure how fast will be able to under current conditions.
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