U.S. ethanol output increased 39% over 2007 on last week's government report, because of February's one additional operating day. But output would have been even greater if ethanol plant utilization hadn't tumbled that month. According to the Energy Information Agency (EIA), daily U.S. ethanol output rose to a record 518,000 barrels per day, up 8,000 from January. However, February's overall output slipped to 631 million gal., down 33.36 million from January's record.
With crude oil prices below $90 per barrel early in the month and ethanol on a bit of a defensive decline early this year, some U.S. ethanol firms must have decided to take some maintenance downtime-resulting in the capacity utilization tumble. Based upon the Renewable Fuel Association's (RFA) operating plant list for the beginning of February, capacity utilization fell to 99.8%-down 3.8% from January's strong level, as 363 million gallons of new plant capacity fully came on board during February. After a slight rise in January, ethanol stocks declined 209,000 barrels to 10.465 million according to the EIA. Given the record monthly rise in new plant operations that month, any decline in monthly ethanol stocks has to be a victory for ethanol producers who saw the industry's capacity jump to near 8 billion gal. by month's end.
According to ethanol sources, six new bio-refineries came online during April, totaling 363 million gal. of capacity. Two of these new refineries were in Illinois, while one new plant each came online in Wisconsin, Ohio, Indiana and Idaho. The Indiana plant was Poet's Alexandria bio-refinery. This brings this firm's stated operating capacity to 1.32 billion gal., with 195 million in new plants still under construction after a slow permitting process prompted them to shelve a second plant in Albert Lea, Minn. Overall, U.S. bio-refinery capacity is now 8.885 billion gal., when making some minor adjustments to the RFA's plant list on its Web site.
Over the last month, concerns in the media have risen sharply that the 2007 Energy Bill's higher ethanol mandates have been the primary reason for higher U.S. and world food prices. Two governors (from Texas and Connecticut) have also petitioned the Environmental Protection Agency to cut the current Renewable Fuel Standard (RFS) levels by 50%, and the agency will have to respond within 90 days. Industry and farm groups have pointed to two university studies (Texas A&M and Iowa State) that attributed most of the rise in food prices over the last two years to higher energy prices in transportation and plant operations and higher packaging costs-while the raw material cost in most foods have risen, but remains a modest portion of the final cost. The new U.S. Farm Bill, if passed, would shave the current blender's credit to 46 cents (from 51 cents).
In this atmosphere, corn producers need to be aware of possible ethanol demand changes. High gasoline prices will provide support to ethanol values and production, because of the profitability it now provides energy firms. But February's reduced plant operations and April's 400 million new plant capacity shortfall needed to reach old crop's current 3.1 billion ethanol demand, suggesting the USDA's May 9 old crop ethanol demand may still be 100 million bu. too high. Slow spring planting remains supportive to corn, but given the possibility of reduced ethanol demand-due to losing processing margins from lower gasoline prices rather than lower RFS mandates-producers should be prepared to push new-crop coverage to 50%-55%, and finalize old-crop sales if planting weather improves.
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