How to Track COVID-19 Impact on Ethanol, Corn Using Gro

21 March 2020

The COVID-19-induced plunge in global energy prices has hurt ethanol processing margins, and that’s likely to have long-lasting impact on the soon-to-be-planted US corn crop. Gro Intelligence users can track data and adjust their forecasts in near real time using Gro’s COVID-19 Monitoring Kit.

Oil prices slumped as COVID-19 sank prospects for the world’s economies, and dropped further on a subsequent price war between Saudi Arabia and Russia. Ethanol prices also fell, squeezing US processing margins and potentially putting the brakes on production. Since 40% of the US corn crop goes to making ethanol, lower demand for the fuel additive should also reduce demand for corn.

The COVID-19 worldwide crisis is fast moving, and markets have been volatile. Gro’s US Ethanol Monitor, which is part of our COVID-19 Monitoring Kit, allows Gro users to stay on top of shifts in ethanol output and stocks, as well as to project corn use in ethanol for the current marketing year.

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Ethanol production has been strong for most of 2020, but that’s likely to stall on the lower margins. In its February WASDE report the USDA raised its estimates for ethanol use of corn in the current marketing year by 50 million bushels. Now the department will likely have to reverse that increase. One analysis projects a decline in corn demand of 120 million to 170 million bushels due to the ethanol industry shrinkage, according to the Department of Agricultural and Consumer Economics at the University of Illinois.

Lower corn and ethanol consumption this season will weigh on the minds of farmers who are about to begin planting for the new season in a few weeks. Corn prices fell about 10% in the past month due to COVID-19 and declines in the wider commodity and equity markets. Ongoing market volatility means analysts must continually adjust their supply and demand balance sheets to account for the loss of ethanol demand and the impact on corn carryover stocks, which stand at 1.892 billion bushels, according to the latest WASDE report.

Gro API users can project final corn use in ethanol for the 2019/20 season, which ends Aug. 31, by doing a regression analysis, according to the following steps. First, take the sum of “Production Quantity (volume/time) - Fuel ethanol” from the Sept. 1 start of the season to mid-March, or the last reporting period, for each of the previous 10 years. That is the independent variable that will be used to predict the annual total “Processing Use (mass) - Corn, for ethanol” in the regression. The analysis predicts 5.485 billion bushels of corn going to ethanol in the 2019/20 season, as of March 18. That compares with the current USDA forecast of 5.425 billion bushels. If weekly ethanol production numbers fall, each new data point should push this forecast lower, making this analysis important to revisit regularly.

COVID-19’s impact on corn and ethanol markets also could undermine the reliability of the first big piece of data ahead of the 2020/21 season—the USDA’s March 31 Prospective Plantings report. Farmers were surveyed in the first week of March for the report, and it’s likely that the survey will not capture the full impact of COVID-19 on acreage decisions. The next official estimate for planted area won’t come until the June 30 Acreage report, underlining the importance of the March 31 release. If this month’s Prospective Plantings report forecasts more acres will be planted in corn than were sown last year, it could be another negative data point for already reeling corn markets.

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The chart on the left shows weekly ethanol production running at or near record high levels for most of 2020 (blue line with markers) and late 2019 (solid blue line). The shaded blue area is the min/max range since 2010. Demand for corn from the ethanol processing industry was a welcome outlet for a well-supplied corn market, especially since corn export activity has been lackluster (right chart). Ethanol demand for corn is now expected to falter. And corn exports are unlikely to show much strength, as the COVID-19 crisis has weakened the currencies of competing corn exporters and made it harder for the US to gain market share. Click on the image to interact with the charts on the Gro web app.
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