Price of US ethanol unlikely to drop below zero; easy to freeze production

WHILE still falling, the price of biofuel is not expected to drop below zero despite US supplies of corn-based ethanol having ballooned to a record during the lockdown and social distancing measures triggered by the Coronavirus pandemic that are stopping people from travelling. The reason being is that it's much easier to close a mill where grain is crushed into fuel than an entire oil field. American ethanol output has already slowed by the most in history, and it will be a relatively simple process to shut down more plants if prices keep tumbling, reported Bloomberg.

'The ethanol industry apparently has the ability to turn off capacity in fairly short order,' said independent trader in St Louis Ken Morrison.

Then there's the storage question. For oil, chronic oversupply is overwhelming the world's crude tanks, pipelines and supertankers, where it's stored before being refined into petrol and other fuels.

But ethanol doesn't face the same pressure. While tanks and rail cars are filling up at plants, production slowdowns are limiting new inflows and making the storage situation easier to handle.

The corn that would be turned into biofuel can be stored on the ground in bags, even if silos get full. Plus, the American harvest for the next crop is still months away. And if things are still looking just as dire then, the grain can just be left in the field.

That said, the halt in demand is hitting the industry hard - causing an estimated US$2.5 billion in damages in the top ethanol state of Iowa. While prices are still on the positive side, margins have turned negative for a lot of producers. And with crude going below zero, it's a sign that the situation for biofuel will continue to be tough for some time to come.

'Seeing these negative oil prices, there's no incentive for ethanol to be running right now,' said Farm Futures grain market analyst Jacqueline Holland.

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