As fuel prices begin to drop nationwide, ethanol and biodiesel plants are making hard decisions as to whether to shut down or idle production.
The Renewable Fuels Association and several other organizations are asking Congress and the White House in a letter to provide credit to pay workers, suspend business taxes, and amend the tax code to restore the ability of businesses to carry back any net operating losses against previous year tax payments.
“Motor fuel demand is plummeting, and most analysts today are expecting a 20 to 25 percent drop in the near term,” Renewable Fuels Association President Geoff Cooper said in a conference call.
He said April ethanol futures closed at $0.95 cents per gallon Wednesday and said they were back up at $1.01 by the close Thursday afternoon.
“These are some of the worst margins that we’ve seen in the industry’s history,” he pointed out.
“Labor costs, and we’re talking about wages and benefits, for a typical (ethanol) plant is going to be in the six to eight cent gallon range, somewhere in that ballpark,” Cooper said, referring to how much money may be needed to help the industry.
RFA Economist Scott Richman said economics in the ethanol industry have rapidly deteriorated over the last few weeks.
“That’s been a result of the Saudi Arabia-Russia oil price war and the progressive restraints that have been imposed in connection with the coronavirus,” Richman said. He noted market developments are already affecting corn prices.
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“We’ve seen corn prices slump on days when ethanol prices have slumped and general markets have slumped,” Richman said.
However, he said with margins that are as deeply in the red as they currently are, corn prices have not fallen as much as they would take to get ethanol production close to profitable. Richman said they could not provide a hard number as to how many plants have currently shut down or idled production.
The Alcohol and Tobacco Tax and Trade Bureau issued public guidance Wednesday, giving flexibility for alcohol fuel plants and beverage distilled spirits plants to shift to the production of ethanol-based hand sanitizers.
But Chad Friese of Chippewa Valley Ethanol, which produces ethanol fuel as well as alcohol for uses like hand sanitizer, said changing from producing ethanol for transportation fuel to hand sanitizer is not as easy as people think.
“These ethanol fuel facilities are not really designed for this. Pharmaceutical grade is what you need because it’s coming in contact with humans so skin and different things can be affected,” Friese said.
He said he is already seeing beverage companies begin to make hand sanitizer because they are better equipped to do so.
Biodiesel and renewable diesel producers are getting hit hard as well.
“Restaurant closures are disrupting used cooking oil collections, which make up more than 10% of the industry’s feedstocks,” National Biodiesel Board’s Paul Winters said in an email to Agri-Pulse.
He also said supply chains and deliveries are disrupted across the country, which has an impact on demand for diesel.
“Biodiesel is disproportionately impacted by the decline in demand for fuel — including aviation fuel — when it’s combined with the glut of cheap oil,” Winters noted.
He followed up by saying soy, canola and other oil prices are not falling as fast as petroleum did. So, biodiesel production margins are getting squeezed.
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