World Grain - April 2022 - 38

FEATURE: FROM COVID-19 TO WAR, BIOFUELS INDUSTRY TACKLES CHALLENGES
Corn is the
primariy feedstock
for US
ethanol production.
US
ethanol production
The United States is the world's top producer of ethanol,
accounting for 55% of global production. Brazil comes in
second at 27% of the global share while the EU accounts
for about 5%. No other country had more than a 3% share
in 2021, though India saw a notable increase in production,
according to the RFA.
The US industry, which primarily uses corn as a feedstock,
recovered substantively in 2021 from COVID-19
impacts. As the economy reopened, people started driving
again and gasoline and ethanol demand increased over
2020 levels, the RFA said. In response, ethanol producers
restored capacity that had been idled during the pandemic
and increased operating rates. By the end of the year, there
were 208 ethanol biorefineries with a capacity of nearly
17.7 billion gallons. Those facilities produced 15 billion
gallons of fuel in 2021.
" While that is still only an 86% utilization rate, it reflects
significant growth from 2020, " the RFA said in its
state of the industry report. " Total production rose 7.6%
over the previous year, and both output and demand continue
to grow - suggesting that 2022 will be higher still. "
The industry also returned to profitability with average
ethanol prices in 2021 more than 80% above average prices
in 2020. In addition, average prices for distillers grains,
a byproduct of the ethanol production process, were 27%
higher than a year earlier.
This profitability occurred at a time when corn prices
averaged $5.99 per bushel, 74% above 2020 levels.
Inflation in the overall economy reached 7%, which affected
all other input costs. However, the prices of ethanol
and co-products also surged and outpaced the increase in
total operating costs, the RFA said.
" Consequently, average industry profitability for all of
2021 more than doubled compared to 2020 levels, " the
RFA said.
38
Margins have remained positive in 2022, said Kenneth
Scott Zuckerberg, lead grains industry analyst at CoBank.
While ethanol fuel prices are rising along with corn prices,
rising natural gas prices will crimp margins.
" There isn't a perfect gauge to pinpoint what level of
feedstock inflation could impact production, since commodity
and raw material prices can be quite volatile in the
short-run, " he said.
The Black Sea region is a major producer and exporter
of natural gas and fertilizer. The longer the conflict goes,
the greater the risk of supply shocks, which will increase
the price of natural gas globally, Zuckerberg said.
" Bottom line, higher domestic prices for both natural
gas and corn mean that ethanol producers will likely see
margin compression unless fuel ethanol prices rise at a
greater rate than the input costs, " he said.
US ethanol production is unlikely to be impacted by the
war in Ukraine unless gasoline prices at the pump exceed
$5.50 per gallon, which is viewed as a tipping point for
consumers and would lead to demand destruction.
Nicholson agrees a production decline is unlikely, especially
given the emphasis placed on sustainability, carbon
emissions and environmental impacts. But as fuel prices
creep up, the discussions over food versus fuel are getting
louder and some are calling for changes in policies that
mandate certain levels of renewable fuels usage.
" People are saying my gasoline is $5 a gallon and my
food prices are going up, " Nicholson said. " They're looking
at politicians and policymakers and asking what are
you going to do? Those are all relevant questions. But
then you have all these things in place to deal with sustainability
or carbon reductions. The policymakers put that in
place; they're not going to just give that up because prices
went up. "
Zuckerberg said food supplies are adequate in the
United States, so the debate is more relevant to areas facApril
2022 / World Grain / World-Grain.com
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World Grain - April 2022

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