Ethanol Outlook Weak Amid Sluggish Demand
July 2, 2019
- Operating margins will likely remain weak for the remainder of 2019 under the weight of abundant ethanol production.
- Declining corn production this year will also squeeze margins. Some ethanol plants will be forced to shut down or idle their production due to high corn prices or unavailable corn.
- In 2020 and 2021, margins may move slightly higher as demand and supply come into better balance.
- Exports remain one area of optimism, but that optimism precariously hangs on China’s plans to convert to E10 blend gasoline nationally by the end of 2020. In the meantime, domestic U.S. ethanol demand will likely be flat over the next two years.
- For ethanol plants’ margins to go up, supply will need to go down. This will be a painful process for some higher-cost producers.
- Higher-cost plants – those with older technology, those that are smaller, or are located in areas with higher input costs – will be the first to exit the industry.
- Longer term, ethanol plant profitability will come from diversified revenues and growth in E15 blend gasoline.
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