Report: Ethanol Industry Faces Huge Losses Due To Coronavirus Pandemic

The ethanol industry is facing a multi-billion-dollar loss due to the coronavirus pandemic according to a new report from Iowa State University.

Professors with the Center for Agricultural and Rural Development estimate the outbreak of COVID-19 will lead to more than $2.5 billion in overall annual damage to the ethanol industry and a $347 million loss due to decreasing ethanol prices.

An analysis from the Renewable Fuels Association published today says those losses could soar to $10 billion.

“The easiest impact to see is on fuel, and therefore biofuel, use,” Iowa State’s April 16 report says. “With the imposition of ‘stay-at-home’ or ‘shelter-in-place’ orders, U.S. fuel usage has plummeted to 50 year lows (per person), and the Energy Information Agency is expecting global fuel usage to fall through the second quarter of 2020.”

The “ripple effect” of low fuel prices and decreased usage has led at least eight ethanol plants in Iowa to idle, reducing the production of ethanol and limiting the supply of distiller grain used to feed livestock.

“Iowa is the United States’ second-largest agricultural state, and the impact on Iowa’s agricultural producers, especially of soybean, corn, ethanol, pork and beef is expected to be massive,” the report states.

Patty Judge, a former lieutenant governor and chair of Focus on Rural America, pointed to the university’s report during a recent press conference about the pandemic’s impact on rural communities and small towns.

“We are facing tough, tough times and we must do our best to keep Americans healthy, to take care of our medical providers, to address our economy,” Judge said via Zoom. “We cannot structure aid packages so that only the big survive and the mom and pop shops that define our town squares and the job creators across value-added agriculture continue to take the hits.”

Rob Larew, president of the National Farmers Union, described the spring planting season as an “optimistic” and “hopeful” time for farmers as they prepare their fields for months of growth ahead.

“But this is no ordinary spring as we all know,” Larew said.

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The challenges farmers now face amid the pandemic is “coming on the heels of some really tough past years. Farmers are financially stretched to the brink, across all commodities and livestock, and the recent disruptions and market changes are just sending those operations in more dire straights at this time.”

Since President Trump took office, trade wars and exemptions to the Renewable Fuel Standard for oil refineries have plagued the nation’s farm economy.

“Prior to this outbreak, farm income was down by half compared to 2013,” Judge said. “Farm bankruptcies were escalating and trade disruption in 2018 had cost Iowa $2 billion in gross state product. In 2019, farm finance continued to erode as 44% of growers struggled to cover their costs. Small refinery waivers are going to companies as big as Exon and Chevron, allowing them to diverge more than 4 billion gallons of biofuel from the market.”

Emily Skor, CEO of Growth Energy, a pro-biofuel trade association, described ethanol and biofuel plants as “the beating heart of the rural economy,” providing skilled jobs, clean fuel and feed for livestock.

“Our industry came into COVID-19 already under significant economic duress,” Skor said. “2019 was one of the toughest economic years in recent memory for ethanol producers because they faced historic floods and hostile regulators. The dramatic influx of oil refinery exemptions coming out of this EPA meant that we were really in pretty dire straights, and that’s before we even faced the economic downturn of COVID-19.”

Due to a 46% drop in fuel demand, Skor said, about half of the ethanol industry has stalled.

“If you look at the impact of these amount of ethanol plants being off-line, you annualize that, that’s about 2.5 billion bushels of corn demand, of corn that’s not going to be ground,” she said. “Ethanol is one of the most important markets to maintain steady grain prices.”

Tom Vilsack, a former Iowa governor and President Obama’s secretary of agriculture, noted how 20% of America’s economy is tied to food and agriculture production, sectors that not only are hit hard economically by the coronavirus, but whose frontline workers in production and retail are becoming infected with COVID-19. Hundreds of Iowa’s COVID-19 cases are tied to meat packing plants in Tama, Columbus Junction, Waterloo, Perry and others.

“This is a difficult circumstance and situation that the ethanol industry and American agriculture finds itself in,” Vilsack said. “It’s going to be important, I think, for the administration and for USDA to be very forthright about the assistance it can provide, and very creative.”

 

By Elizabeth Meyer
Posted 4/20/20

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