Energy demand has fallen to record lows recently largely due to this coronavirus pandemic. While this has ended up devastating oil prices, which ended up falling into the negative for the first time in history earlier this month, other energy commodities have been hard hit as well. One of these is ethanol, which constitutes a significant portion of the corn demand for U.S. farmers. Now that oil demand has plummeted, U.S. farmers are finding themselves particularly hard hit as well as ethanol demand plummets as well.
American ethanol production ended up falling to a record low recently, down to just 563,000 barrels per day according to information provided by the U.S. Energy Information Administration. Domestic inventories of ethanol have also reached record highs, climbing up to 27.7 million barrels as of mid-April. As demand continues to plummet, further inventory stockpiles seem likely. Considering that U.S. storage space for West Texas Intermediate is pretty much filled to the brim, it wouldn’t be surprising if a similar situation happens with ethanol where there simply isn’t any more storage space to store the energy commodity.
With tourism and travel now effectively halted until further notice and most people now either working at home, quarantined, or unemployed, demand for energy is already shockingly low. As such, major ethanol producers in the U.S. have decided to drastically cut back production or close their ethanol plants altogether.
One major producer, Valero Energy (NYSE: VLO) has gone on to say that it has cut almost 920 jobs across 14 separate ethanol facilities. The company also warned earlier in the month that its Q1 2020 financial figures would be a little disappointing, due almost entirely to this coronavirus pandemic and its effect on oil and ethanol demand. “There has also been a decline in the demand for, and thus also the market prices of, crude oil and certain of our products, particularly our refined petroleum products and most notably gasoline and jet fuel,” said the company in a statement earlier in April.
As for U.S. farmers, this coronavirus situation is only making things even worse for them. Many corn farmers struggled to stay afloat back in 2019, when floods and a record amount of rainfall ended up pushing back corn planting season, leading to many farmers opting out of planting that year’s harvest altogether. The Environmental Protection Agency (EPA) also waived restrictions for certain small refineries that otherwise required them to blend corn-based ethanol into their gasoline. This further ended up reducing demand for corn at the time.
With there seeming to be no end in sight for most energy commodities due to this coronavirus, U.S. corn farmers seem likely to have another terrible year as demand for their crops falls to record lows.
Valero Energy Company Profile
Valero Energy is one of the largest independent refiners in the United States. It operates 14 refineries with a total throughput capacity of 3.1 million barrels a day in the United States, Canada, and the United Kingdom. Valero also owns 14 ethanol plants with capacity of 1.7 billion gallons of ethanol a year and holds a 50% stake in Diamond Green Diesel, which has capacity to produce 275 million gallons per year of renewable diesel. – Warrior Trading News
