Higher blends and exports to carry ethanol out of pandemic
U.S. ethanol production plunged 13% last year due to the pandemic, costing the industry around $4 billion in sales. But it may recover fully by 2023, on the strength of larger exports and rising domestic use of higher blends of ethanol into gasoline, said the Food and Agricultural Policy Research Institute.
Farm income will be $112 billion this year, far above the 10-year average, with generally strong commodity prices more than offsetting a $22-billion decline in farm subsidies from the record $46 billion of 2020, said the University of Missouri think tank. With farm finances on healthier footing, land values are forecast to rise 5% this year. The debt-to-asset ratio, a widely watched indicator of financial health, would decline for the first time since 2012.
Ethanol production is important to the farm economy because roughly 35% of the corn crop is used in making the biofuel, and corn is the most widely planted crop in the country. Farm groups praise ethanol as a home-grown fuel and the generator of tens of thousands of rural jobs at ethanol plants.
“Expansion in mid-level ethanol blends such as E15 lead to steady but slow growth in domestic ethanol use,” said FAPRI in discussing the ethanol outlook. The traditional blend of ethanol into gasoline is 10%. “Rising export demand for ethanol drives production to levels higher than what was seen prior to the pandemic.”
FAPRI forecast ethanol production at 14.9 billion gallons this year, compared with 13.8 billion gallons last year and 15.8 billion in 2019. Output would rise to nearly 15.7 billion gallons in 2022 and 16 billion gallons in 2023. “Production levels are projected to reach 16.7 billion gallons by 2030.”
Ethanol industry officials have said production may return to pre-pandemic levels in 2022, with output around 16 billion gallons and domestic use of 14.5 billion gallons. Exports could exceed 1.5 billion gallons this year with China back as a customer, said the head of the trade group Renewable Fuels Association. The RFA and other pro-ethanol groups are pressing for wider sales of E15.
In its outlook, FAPRI projected domestic ethanol use at 13.7 billion gallons this year and 14.2 billion gallons in 2022, compared with 12.7 billion gallons in 2020. Exports, which dropped 9% to 1.34 billion gallons in 2020, were forecast for 1.4 billion gallons this year and 1.7 billion gallons in 2022.
For years ethanol usage moved in parallel with gasoline consumption, but they will diverge in the future, according to FAPRI. Gasoline consumption totaled 142 billion gallons before the pandemic. It fell to 124.8 billion gallons last year and is expected to recover to 134 billion gallons this year. According to FAPRI it would then run around 138 billion gallons annually into the medium term while ethanol would surpass its pre-pandemic levels within a couple of years.
FAPRI estimated farmers will plant slightly fewer acres of corn, 90.3 million vs. 92 million, and slightly more acres of soybeans, 90.4 million vs. 90 million, than the USDA projected last month, with a corn crop of 14.9 billion bushels and a record soybean crop of 4.48 billion bushels.
The FAPRI report is available here.