-Ethanol production plummets amid arctic blast
-Ethanol stocks decline sharply in reaction
A significant decline in U.S. ethanol production last week was anticipated as a result of the long-lived arctic blast across the nation’s midsection, prompting historic spikes in natgas prices which, in turn, prompted forced and/or elected reduced ethanol production rates, but the actual production cuts were even larger than expected. EIA reported U.S. ethanol production, for the week ended 2/19/21, fell to 658k barrels/day (193 million gallons/week) from the previous week’s 911k bpd (268 million gallons/week), reflecting the largest single-week production decline on record since EIA began reporting weekly data in June 2010. For reference, last week’s 253k bpd production cut dwarfed the previous record weekly decline of 168k bpd during the first week of April 2020 as the COVID crisis quickly hit. For the week, an estimated 67 million bushels of corn was used for ethanol production, an impressive 1-week demand reduction/loss of 26 million bushels from the previous week. In all likelihood, that may prove to simply be lost demand as current margin structures/gasoline demand levels don’t really justify the need or potential to make up the production decline over the coming weeks/months. There are also questions about the potential of this week’s situation not only being a 1-week event so we would not be surprised by another week of very low, possibly even lower, production next week, as well. The lowest weekly ethanol production in the heart of the COVID crisis was 537k bpd, reflecting estimated weekly corn usage of 54 million bushels. Certainly ethanol production is expected to recover to recent-week levels in March, but again, this could very well play out to be a situation of simply wiping 50+ million bushels of corn demand off the balance sheet. In the current context of U.S. corn ending stocks expected to be below 1.5 billion bushels, the “finding” of 50+ million bushels is a material development.
On a year-over-year comparison, last week’s ethanol production was down nearly 38% from last year’s 1.054 million bpd (310 mil gal/week) rate, with same-week estimated corn usage for ethanol production 38 million bushels less than a year ago. As it currently stands, we estimate ethanol production would need to average roughly 942k bpd through the end of August in order for the USDA’s 4.950 billion bushel annual corn for ethanol usage estimate to prove accurate vs last year’s 834k bpd average from this point forward. Keep in mind, ethanol production last year averaged only 618k bpd for an 8-week period during April-May so the year-over-year comparisons will be a major boost once we get there.
With the massive cut in production, U.S. ethanol stocks last week declined sharply, as well, to 957 million gallons (22.785 million barrels) from 1.020 billion gallons (24.297 mil barrels) the week prior, the lowest in 11 weeks and 81 million gallons below last year’s same-week stocks of 1.038 billion gallons. The 63 million gallon stocks decline was even larger than the largest single-week reduction during the COVID shock period last spring of 60 million gallons in the first week of May 2020. Over time, we would expect ethanol stocks to recover and begin working back towards recent levels as overall gasoline demand remains tepid, as well. On that note, the arctic blast prompted a notable decline in gasoline demand for the week to 7.207 mbpd from 8.407 mbpd the week prior, reflecting a 20% year-over-year decline vs the 10% average demand decline during the previous four weeks. Calendar year 2021 U.S. gasoline demand is averaging 10.8% below year ago levels based in the EIA’s weekly data.
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