Ethanol plants cut production as COVID-19 cuts demand
Friday, April 17, 2020
The public isn't driving as often or as far these days, in light of COVID-19 health recommendations. The decrease in gasoline consumption is starting to take its toll on Iowa ethanol producers.
"Plants are either shutdown or in the process of shutting down," Al Giese, Iowa Renewable Fuels Association board member, said. "Within a couple weeks, there will be very few left running."
Giese estimated gasoline consumption has been cut in half, thanks to the virus. Around 40 percent of the nation's corn is used by the biofuel industry, according to Giese, and western Iowa is home to the largest concentration of ethanol plants in the country. He said the lack of demand has resulted in some ethanol plants losing around 70 cents per bushel of corn processed. Giese is also co-owner and manager of Prairie Feed and Trucking in Milford, and he said the viral outbreak is starting to cut into grain demand as well.
The novel coronavirus came on top of other market hardships. Production waivers granted by the Environmental Protection Agency had dropped the volume of fuel blended under the 2019 Renewable Fuel Standard from 15 billion gallons to 14 billion gallons. A U.S. 10th Circuit Court decided earlier this year the EPA abused its authority by granting the waivers, and the Iowa Renewable Fuels Association called on President Trump last month, asking that the ruling be applied across the country.
For the here and now, U.S. Sen. Chuck Grassley and Sen. Joni Ernst joined 13 other Midwest senators in authoring an April 6 letter to U.S. Secretary of Agriculture Sonny Perdue. The group of legislators urged Perdue to financially support the biofuels industry.
"As the consumption of motor fuel continues to decrease in response to COVID-19, it is important to note that most U.S. gasoline contains at least 10 percent ethanol," the letter read. "We are concerned for the many farmers and producers who will bear the impact of this decrease in consumption, further damaging an already hurting rural economy and resulting in the closing of production facilities that employ many people in rural communities in our home states."
The letter goes on to say the recent Coronavirus Aid, Relief and Economic Stabilization Act — or CARES Act — provided funding to the Commodity Credit Corporation, and the group of senators asked Purdue to allocate more of those dollars to the biofuel industry.
"We have seen a significant drop in the price of corn and soybeans because of the decline in demand," the letter said. "Keeping plants open is vital for our states, and we ask that you use the authority given by Congress to assist the biofuel industry during extremely difficult times."
And assistance is just what the industry needs right now, according to Giese.
"Like the airlines, like big oil, like many industries across America we need some economic relief," he said. "As much as you hate to go to the government, this is an important industry to American agriculture — certainly to Iowa agriculture. It's important to our energy security, and it's important environmentally from a human health and environment stand point to use these products in our fuel supply rather than harmful aromatics."
Fortunately, there is a silver lining in the COVID-19 cloud. Giese said, while the EPA's waivers had been troublesome for producers, the Food and Drug Administration actually relaxed regulations on the types of alcohol which can be used to produce hand sanitizer. Giese said ethanol plants are supplying millions of gallons of alcohol for the production of the highly sought-after product.
"It's not enough to reverse the economic damage that crude oil wars, the trade wars and now the corona pandemic have created, but it has helped, and it shows that the renewable fuels industry is always willing to step up and help," Giese said.
And even with the hardships and closures, Giese doubts the COVID-19 pandemic spells the end for the renewable fuel industry.
"As gasoline demand comes back and economics start to improve, I think the ethanol industry will come back with it," he said. "Some probably won't survive it, unfortunately. But overall, this industry will come back, and it really has to in terms of agriculture and particularly Iowa agriculture."