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Ethanol industry feels pandemic’s impact

Pacific Ethanol’s facility in Pekin, Illinois, is diversified and able to free up additional high quality USP-grade alcohol it produces for use in hand sanitizer production and donating it to local communities.
Pacific Ethanol’s facility in Pekin, Illinois, is diversified and able to free up additional high quality USP-grade alcohol it produces for use in hand sanitizer production and donating it to local communities.

PEKIN, Ill. — Stay-at-home restrictions imposed to limit the spread of COVID-19 have reduced gasoline consumption by 50% and hit an already challenged ethanol market.

The industry, which already had its hands full with the small refinery exemptions issues, is finding ways to utilize facilities by producing other products, but it’s not enough at this point.

A Renewable Fuels Association analysis estimates that ethanol production could fall by approximately 3 billion gallons in 2020, representing a nearly 20% cut from levels that would have otherwise been expected.

Mainly due to lower usage and high inventories, ethanol prices could be 56 cents per gallon lower on average from March to December than they otherwise would have been. As a result, ethanol sales would fall to $12.5 billion in 2020, a 46% reduction from the $23 billion that would have been expected absent COVID-19.

ABF Economics found that the ethanol industry contributed $43 billion to U.S. GDP and supported nearly 350,000 jobs in 2019. But based on today’s RFA analysis, it is expected that the industry’s contribution to GDP could shrink to $30 billion in 2020, nearly one-third less than last year.

Further, if the scenario in the RFA analysis plays out, the industry would support nearly 280,000 jobs across all sectors in 2020, a reduction of about one-fifth from 2019.

Neil Koehler, Renewable Fuels Association chairman, CEO and co-founder of Pacific Ethanol which operate biorefineries in Illinois and four other states; Mick Henderson, general manager at Commonwealth Agri-Energy, Hopkinsville, Kentucky; Mike Jerke, CEO of Southwest Iowa Renewable Energy in Council Bluffs, Iowa; and Geoff Cooper, RFA president and CEO, provided insights into the current climate in a recent podcast.

Here’s what they had to say.

On Their Companies

Koehler: “The 50% demand destruction in our market — we’re the largest producer in the west. California has been hit particularly hard. Some of the markets that we serve in northern California, we were seeing at the front-end of this 60%, 70% impact on demand.

“So, the margins have gone very negative to eventually send a very brutal signal that production needs to come off line and that’s what has happened. We as a business to have idled over 50% of our capacity unfortunately has involved layoffs.”

Henderson: “Virtually all of our ethanol is destined for Nashville, Tennessee, and that got hit by major tornadoes March 3 that basically took four of our five customers off line for a week. So, we started filling tanks and talking about slowing down, shutting down, and then the week following that the coronavirus hit lowering demand by 40% to 50% nationwide for gasoline.

“Nashville demand dropped 40% within a week. Knoxville lost its ethanol supplier and we started supplying them. We were losing even more money but staying at full capacity. Now we’re treading water even more.”

Jerke: “Our normal annual production is 130 million gallons that equates to about 130,000 bushels of our local farmers’ corn being processed every day. We are operating today at less than 50% capacity, so clearly (using local corn) is not happening either at less than 50% and prices reflect that. There’s just no place to store product and that’s essentially what’s happening.

“We’re running at rates less than 50%, but we really haven’t sold a gallon since some time in early March and so all of this product is going into storage. We’re just attempting to get by until we go into a shutdown mode to do maintenance and then we will evaluate at that point whether or not it makes sense to come out of that shutdown or just stay idle.”

On Resourcefulness

Koehler: “Our facilities in Pekin, Illinois, have always produced a high quality (U.S. Pharmacopoeia)-grade alcohol. We’ve been diversified and fortunate to be in that area and able to free-up additional supplies of that alcohol for hand sanitizer production.

“We’re also doing our part of producing our own hand sanitizers and donating that to local communities. We donated some high quality alcohol as well to some facilities.

“We’re definitely trying doing our part to keep our communities healthy and safe. We produce CO2 at three of our seven facilities, and we’re trying to continue to make those supplies available, as well.”

Henderson: “We’re 20 miles from Ft. Campbell, Kentucky, home of the 101st Airborne Division. The administrator called and said they didn’t have any hand sanitizer at the gates for public exposure. I filled a barrel with 190 proof and sent it down to him. He made his own hand sanitizer and notified a couple of other local craft bourbon distilleries. They’re not big, but they had laid off their people and were shutdown.

“So, we started up a little side business, gave 270-gallon totes of alcohol to four different bourbon distillers and they all started in the hand sanitizer business. We’ve continued that and have shipped truckloads of that. It takes the edge off. It really inspires and improves morale for my crew.”

Jerke: “In these trying times with the pandemic situation, we’re extremely proud of the way our employees have stepped up. We are also working to follow Food and Drug Administration and World Health Organization guidelines to manufacture hand sanitizer. We’ve partnered with local hospitals to donate hand sanitizer.

“We’ve also worked with the State of Iowa and our local county to provide on a contracted basis much needed product for our folks that are on the front lines of fighting this epidemic. That’s a bright spot and something that really motivates our team as they look at what’s happening all around them as folks are sheltering in place and try to be safe.”

On Policy

Cooper: “We had been discussing with USDA and Congress about the need for some assistance to the industry to weather this crisis and to get through this and come out whole on the other end. The answer we’ve heard from USDA is there just wasn’t enough to go around and I think the demands on their resources were such that there was not enough funding assistance available to help out all of the sectors that are in need of assistance.

“So, I think there will be additional rounds of assistance coming from USDA and it’s our hope that ethanol is strongly considered for inclusion in those additional rounds. We think a fourth stimulus package is a more likely vehicle for an ethanol program. There is strong support.

“More than 30 members of the House and 15 senators sent a letter to USDA encouraging Secretary Perdue to specifically direct some assistance to the ethanol industry. So, we know there’s support in Congress for that type of assistance and we’re going to continue working with our champions in both chambers to try and get something included as the next package is debated.”

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