Ethanol can regain momentum
The ethanol industry — like the farmers and cooperatives who did so much to birth it — is not immune from the ups and downs of the marketplace. It’s struggling now, with low profit margins to prove it.
Downward pressure increased its force in the second half of 2018, when production growth increased inventories and sparked price declines that reached near-record levels. Ethanol plant managers reduced production. Some went so far as to stop operations.
Problems extend beyond overproduction. Fallout from the U.S.-China trade dispute has caused ethanol exports to the most populace nation in the world to plummet.
An administrative action taken by the Environmental Protection Agency in 2018 has made the situation worse. The EPA decided to grant waivers to small ethanol producers that request it. A waiver, if granted, would allow smaller refineries to avoid the 15 percent blended requirement.
The waiver rule — after it received harsh criticism — was suspended until the EPA completes an evaluation of the waiver’s impact on the industry.
While the waiver dispute has, if nothing else, created uncertainty, the Trump administration helped ethanol late in 2018 when it announced that it supports a waiver that allows the year-round sale of 15 percent blended ethanol in gasoline.
Year-round sales had been stymied out of concern that the product contributes to smog and other environmental problems in summer months.
The Environmental Protection Agency supports year-round ethanol sales. A comment period regarding the proposal opened April 1.
Ethanol leaders, despite sluggish demand and paper-thin profit margins, are optimistic that the industry is poised to rebound in 2019.
“We hope that 2019 can get ethanol demand out of neutral and growing again with a properly enforced RFS (Renewable Fuels Standard), year-round E15 and the reopening of the Chinese market,’’ said Monte Shaw, executive director of the Iowa Renewable Fuels Association, via a press release. “Much depends on the Trump administration and the actions of the EPA. It is within their power to set us on the course for not only record ethanol production, but restored prosperity in rural America.
Increased corn consumption for ethanol production is obviously important because the March 1 planting intentions report indicates 5 million additional acres will be committed to corn in 2019 than the year before.
However, even if the White House and EPA make the correct decisions, it won’t be a cure-all for the industry. Overproduction continues to be a drag.
Iowa ethanol plants produced 4.35 billion gallons in 2018, up from 4.15 billion gallons in 2017 but still not at full capacity. Iowa is home to 44 ethanol plants, which makes it the largest producing state.
Production isn’t exactly small potatoes in Minnesota, either. The state’s 19 plants produced 1.27 billion gallons in 2018, which ranks it fourth in the nation.
Ethanol’s future remains bright with so many farmers and rural communities depending on the industry for their economic vitality. It has withstood federal policy roadblocks before and will continue to do so based on the strengths of the product.
Expanded export opportunities, government’s willingness to remove roadblocks and a greater commitment to a product that benefits the environment has the potential to help the industry regain the momentum.