US corn ethanol refineries, which are facing a catastrophic loss of fuel demand due to the corona virus, are reusing some hand disinfectant products to replenish the stocks depleted by the outbreak.
RBC Capital Markets estimates that pandemic-based home-stay restrictions have reduced US gasoline consumption by nearly two-thirds or 6 million barrels a day. The decline will hit ethanol hard, as it accounts for about 10 percent of most gasoline sold in the United States.
The impending shock of demand reverberates through the rural Midwest, where four out of ten bushels of corn are consumed by ethanol plants. Corn futures in Chicago have dropped 8 percent since March 1 to below $ 3.50 a bushel.
“We’re losing money pretty quickly,” said Daryl Haack, farmer and board member of Little Sioux Corn Processors, an ethanol plant in northwest Iowa. His board wanted to meet on Thursday to discuss whether to slow down production, he said.
The turmoil in the ethanol industry has exacerbated tensions with the oil industry, whose companies also suffer from the effects of empty roads. The Trump administration is asking Congress for $ 3 billion to buy crude oil for a state supply to support oil producers.
The ethanol lobby, a strong political force in states like Minnesota and Iowa, said it deserved help in a time of need.
“We expect fairness and equity in supporting various US energy industries,” Geoff Cooper, executive director of the Renewable Fuels Association, told reporters.
The wholesale price of gasoline has dropped and is now cheaper than ethanol, although ethanol contains less energy per gallon. According to the Oil Price Information Service, the gasoline inventory in Chicago this week was 24.4 cents per gallon, while ethanol was 86.5 cents per gallon.
The higher price of ethanol will prevent fuel sellers from blending more than the 10 percent required to meet government biofuel mandates and increase the octane content of gasoline.
Meanwhile, U.S. ethanol stocks are near an all-time high of 25 million barrels (or 1 billion gallons, the preferred volume unit in the U.S. biofuel industry). According to JPMorgan Chase analyst Ann Duignan, ethanol refineries are now losing 26 cents per gallon that they produce.
Stocks of listed ethanol refineries were knocked, with Omaha-based Green Plains halving since March 1 and Archer Daniels Midland, a former biofuel champion now trying to spin off his ethanol dry grinders, fell 14 percent.
The Renewable Fuels Association estimates that a capacity of 2 billion gallons will be decommissioned in the next few days, with a total industrial capacity of 17 billion gallons.
According to Nielsen, the corona virus tripled sales of hand sanitizers in the United States over the previous year, leading to widespread bottlenecks on store shelves. The World Health Organization has recommended either ethanol – grain alcohol – or isopropyl alcohol for use in handrubs.
However, an increase in disinfectant sales is unlikely to offset the volume decline in the fuel market. Hand sanitizer sales in the U.S. were $ 193 million in 2019, Nielsen said. Vehicles burned 14.5 billion gallons of ethanol in the U.S. last year, which is worth about $ 20 billion in the wholesale market.
“There are not enough hands to be redeveloped to reach ethanol production capacity in the United States,” said Bruce Rohwer, a corn farmer in O’Brien County, Iowa.
Last week, the U.S. Treasury Department released fuel ethanol and liquor distillers from the need to seek disinfectant approval before selling on the market and pointed to the urgency of the pandemic.
Chad Friese, managing director of Chippewa Valley Ethanol in Minnesota, said the company was trying to supply the hand disinfectant industry, but the product specifications were different.
“These ethanol fuel systems are not really designed for this. Pharmaceutical quality is what you need because it comes in contact with people, ”he said.