US ethanol industry could face losses of $10bn due to COVID-19

Ethanol sales in the USA could fall by more than US$10bn in 2020 and the industry’s contribution to gross domestic product (GDP) could drop by nearly one-third due to the effects of the COVID-19 pandemic, according to analysis by the Renewable Fuels Association (RFA) published on 20 April.

The economic losses were due to a “pernicious combination of steep production cuts and sharply lower prices” in response to stay-at-home restrictions during the pandemic and the resulting drop in fuel consumption, according to the RFA.

In its report, the RFA warned that these economic damages went far beyond the ethanol sector with US farmers also negatively impacted, as ethanol typically provided a market for two out of every five rows of corn and more than one-third of the annual sorghum crop.

The industry also usually supported 350,000 jobs across all sectors of the economy and contributed valuable co-products like distillers grains and corn distillers oil.

Building on the results from a Purdue University study, the RFA estimated that ethanol production could fall by approximately 3bn gallons in 2020, representing a nearly 20% cut from levels normally expected.

Ethanol prices could be 56 cents/gallon lower on average from March to December than usually expected, mainly due to lower usage and high inventories. As a result, ethanol sales would fall to US$12.5bn in 2020, a 46% drop from the US$23bn that would have been expected prior to the pandemic.

“This sobering new analysis underscores the magnitude of the economic devastation being suffered in the ethanol industry,” said RFA president and CEO Geoff Cooper.

“Roughly half of the ethanol industry is shut down today, as fuel demand has collapsed in response to COVID-19, and it is clear we have a long and bumpy ride to recovery ahead of us. Corn demand and prices have plummeted as plants have idled, jobs are being lost, and rural communities are being destabilised.”

As the agricultural relief package announced in April had excluded assistance for ethanol, the RFA was urging the administration and Congress to take immediate action to help the renewable fuels sector survive.

In its annual economic impact analysis for 2019, ABF Economics found that the ethanol industry had contributed US$43bn to US GDP and had supported nearly 350,000 jobs in 2019. Based on RFA’s analysis, it was expected that the industry’s contribution to GDP could shrink to US$30bn in 2020, nearly one third less than last year. Based on the RFA’s analysis, the industry would support nearly 280,000 jobs across all sectors in 2020 – a reduction of one fifth from 2019.