Excess Production Leading to Dismal Outlook for Ethanol

DENVER, CO – Excess production capacity, and reduced demand will force the U.S. ethanol industry to transform its business model to create more value and improve its operational efficiency. Consolidation within the industry will lead to larger, more financially stable companies with diversified ethanol co-product offerings by 2025, according to a new report from CoBank’s Knowledge Exchange. The economic shock from COVID-19-led business shutdowns and stay-at-home restrictions was unprecedented, causing significant ethanol demand destruction. The battering continued with the crude oil and gasoline supply shock led by Saudi Arabia and Russia. U.S. ethanol production dropped almost 50% from mid-March to mid-April. At the beginning of 2020, the U.S. ethanol industry had 1 billion gallons of excess capacity, which is projected to rise to 3.9 billion by the end of 2020, before settling to 2.4 billion by the end of 2021. Strong export growth would help reduce the excess nameplate capacity, but current projections do not support such an outcome as declining exports to Brazil and Canada caused last year’s 23 percent drop in net exports. Net ethanol exports are expected to drop by 21% in 2020 and then grow by 31% in 2021, based on analysis by The ProExporter Network.
(SOURCE: CoBank)