CoBank - The Quarterly

October 2020

The U.S. ethanol sector continued to recover during the quarter to a new baseline level equating to 85%-90% of pre-COVID demand. Based on EIA data on an annualized basis, weekly production averaged 14.2 billion gallons for the third quarter, 89% of the first quarter’s average production of 15.9 billion gallons.

For a representative Iowa dry milling fuel ethanol plant, industry operating margins (defined as return on operating costs but before capital costs) also improved, averaging $0.21 per gallon, up from break-even during the first quarter. The improvement occurred as supply and demand became more balanced, and active producers benefited from better productivity. 

New developments support the industry as we head into the November elections. First, the Trump administration is removing E15 federal roadblocks. The recently-introduced Next Generation Fuels Act would enable the sale of E15 fuel using E10 pumps, subject to state regulations. Second, EPA has promised to deny numerous oil refineries’ ethanol blending exemption requests. Third, Brazil has agreed to duty-free imports of U.S. ethanol for 90 days. Fourth, there is potential for financial relief to the biofuel sector in the next government spending program. Fifth, perhaps most importantly, supply and demand remain in relative balance at current production levels. 

We maintain a stable industry outlook over the next two quarters for U.S. ethanol, assuming that the economy does not experience a double dip. Our outlook assumes continued high unemployment levels and below average consumer miles driven. Our opinion could become more bullish should new coronavirus cases drastically decline and/or an effective COVID-19 vaccine is rapidly produced and widely administered. 

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