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Corn ethanol plants could be impacted by drought

Corn ethanol plants could be impacted by drought

Higher corn prices are impacting the U.S. ethanol industry, but that is being offset by increased demand for ethanol.

“In spite of high corn prices, ethanol production and use seem to be holding steady at 90 percent of last year’s numbers,” said Dave Ripplinger, NDSU Extension bioenergy/bioproduct economics specialist.

Passenger travel has improved over last year at this time when COVID-19 hit the U.S.

“We are coming back with passenger travel and gas use, which is tied to ethanol. That is good news. Twelve months ago today, things were frightening,” Ripplinger said.

On the demand side, ethanol use is stable. While the U.S. job numbers are still down, which is impacting gas usage, those numbers are also improving.

“We are slowly catching up to normal,” he said.

On the supply side, corn prices are higher, but it is something ethanol plants “learn to live with” in order to have a good supply of corn.

In spite of higher corn prices, most corn ethanol plants are still in good financial condition.

“Corn ethanol has been a price taker on both the corn buying and the ethanol selling side. But you can make it work,” Ripplinger said.

The Renewable Fuels Association (RFA) recently estimated that about one-eighth of the 200 ethanol plants in the U.S. were still not online by March 1. Another one-eighth reduced production.

Some of that was due to the cold spell in mid-February that wreaked havoc in Texas.

“While the Upper Midwest and Northern Plains states are not close to Texas, ethanol production in these states was affected,” he said.

The problems in Texas were driven by disruptions in the natural gas supply.

“Natural gas is used in the refinery process, so the impact rippled,” he said. “Many refiners who had or hadn’t contracted for natural gas shut down. Those who had contracted for natural gas shut down and sold their high-priced gas to someone who was willing to pay to avoid the high price.”

The impact of the Texas cold spell on other states was “unexpected” and states closest to Texas were impacted more than others.

“Those prices (natural gas) travel. We had ethanol plants in the Midwest shut down for two days,” Ripplinger said. “While we didn’t get hit too badly, it did have an impact.”

Ripplinger said it would be interesting to see how much corn will be planted in the region with the current drought impacting acres.

“In the Northern Plains, if we continue to suffer from drought, the situation with corn acres will be less than ideal,” he said.

Ethanol plants continue to want to buy corn locally and continue to build local relationships for a reliable supply of corn.

“If we don’t have a decent corn crop, we will have to go and get it somewhere else,” Ripplinger said. “That is bad for both the corn refiner and the corn farmer.”

Ripplinger explained that in the case of ethanol, both buyers and sellers are in the same boat.

“We want to see nice ethanol prices and we want a happy buyer for our corn,” he said.

Across the region, corn ethanol is a great market for the local corn farmer.

“It can be disrupting to the ag economy to not have the local corn available and no one benefits from that,” Ripplinger said.

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