-Anticipated ethanol production underway with sharp decline to 21-week low
-Ethanol stocks decline to 7-week low, slip below year ago levels
-Gasoline demand plummets
This week’s EIA data confirmed the long-awaited decline in U.S. ethanol production is underway as 1.005 million barrels/day (295 million gallons/week) were produced in the week ended 3/20/20, down sharply from the previous week’s 1.035 mbpd (304 mil gal/week) and a 21-week low, but in a bit of a statistical quirk, was still 3.1% above last year’s same-week production of 975k bpd (287 mil gal/week) in what was the 2nd lowest production week during the 2018/19 corn marketing year and also a notable decline from the previous week. From a corn demand perspective, as the focus of the downturn in ethanol production will inevitably be on, the drop in production for the week implied roughly 3 million bushels less corn was used over the 7-day period than the previous week. As this situation develops, an increasing focus will be put on the progression of reduced implied corn demand relative from week-to-week, but also relative to last year. For the month of March so far, though, total corn for ethanol usage is still up an estimated 11-12 million bushels from last year. While ethanol production was still able to maintain a year-over-year gain this week, that is unlikely to continue for long, and already calls the USDA’s 2019/20 corn for ethanol usage estimate of 5.425 billion bushels into question as ethanol production would need to run roughly 1.3% above year ago levels through the end of August in order to reach that target. We feel it is inevitable USDA will lower their estimate in the April 9 WASDE report, but just how they will handle the situation is uncertain as they typically prefer to take a stair-step approach to revisions. We are currently working with an idea of 5.300 billion bushels, 125 million below the USDA in what will be a constantly-adjusting moving target in the weeks/months ahead.
In a sign of what is likely to come, the EIA’s reported weekly gasoline demand last week plummeted to 8.837 mbpd from 9.696 mbpd the week prior and was 3.1% below last year’s same-week demand of 9.124 mbpd. To put that in perspective, the decline from last week is the equivalent of 13.2 billion gallons in gasoline demand on an annualized basis, or 1.32 billion gallons in annualized ethanol demand. 2020 calendar year-to-date gasoline demand is now down 1% from last year on average according to the EIA’s weekly data.
U.S. ethanol stocks last week declined, as would be expected given the drop in production, to 1.014 billion gallons (24.140 mil barrels) from 1.033 billion gallons (24.598 mil barrels) the week prior and slipped below year ago stocks of 1.027 billion gallons for the first time in seven weeks. Overall ethanol stocks, though, are still the 2nd highest on record on a same-week basis.