This is unlike anything we’ve seen before. Over the course of this pandemic, half the biofuels industry was forced offline, sending shockwaves through the entire agricultural supply chain.
Those who can operate are doing so at a steep loss, while others have shuttered completely.
We saw plants halt or slash production in at least a dozen states (California, Iowa, Idaho, Illinois, Indiana, Kansas, Michigan, Minnesota, Nebraska, Ohio, Oregon, and South Dakota).
This is a skilled workforce that rural America cannot afford to lose. We value our workers highly, and many companies are doing everything they can to keep their teams whole during this crisis, with pay or benefits. But resources are dwindling.
Without swift and decisive action in Washington, many more may soon halt grain purchases or close their doors.
It’s important to remember that ethanol production accounts for 40 percent of the U.S. corn crop, a vital market for farmers across the heartland. Not only do these plants produce clean energy, they also provide high-protein animal feed (DDGs); carbon dioxide for meatpacking and municipal water treatment; corn oil used for high-protein animal feed, biodiesel, and renewable diesel. Any interruption creates a massive ripple effect across the rural economy.
Fuel demand bottomed out after hitting the lowest levels since the US Energy Information Administration (EIA) began tracking the data in 1991. In the last few weeks, we’ve seen overall demand down 50 percent compared to last year. As a result, the break-even price for plants to purchase corn was pushed down 76 cents per bushel, according to the Farm Bureau, putting added pressure on farm income. At this point, no one fully knows what the final impact will be on corn and biofuel demand, but U.S. ethanol plants purchase about 5.4 billion bushels of corn each year, and as much as half the industry could soon be offline. That’s the market for 2.7 billion bushels of corn.
For farmers, the lost income will be measured in billions, not millions. Already, we’ve seen corn prices hit a multi-year low at $3.01 per bushel.
For livestock operations, the most immediate threat is the increase in costs associated with replacing high-protein feed, or Dried Distillers Grains (DDGs), from ethanol plants. When ethanol production drops by half, so does production of DDGs. In today’s market, that would cut production from about 38 to 19 million metric tons, using USDA figures. That is a staggering loss of animal feed for our nation’s ranchers and livestock operators. However, the greatest impact is in local markets, where livestock operators may not be able to economically replace a vital source of key nutrients that they would normally get from their local ethanol plant.
A shortage of CO2 from ethanol plants also inhibits the ability of meatpackers to refrigerate, preserve, and package food.
The loss of farm and biofuel markets impacts every element of the supply chain, including equipment manufacturers. In a survey of member companies conducted by the Association of Equipment Manufacturers (AEM), more than half (56 percent) had a “very negative” outlook for the industry and individual equipment manufacturers. Nine out of 10 executives surveyed cited a decline in demand for equipment as the primary impact of the COVID-19 pandemic on their business.
A strong farm economy not only benefits farmers and ranchers, but also helps protect the more than 700,000 agricultural equipment manufacturing jobs across the United States. That’s why AEM has joined Growth Energy in urging the USDA to provide direct relief to the biofuels industry.
Ethanol producers represent the heart of the rural economy, and when they are forced offline, the ripple effect can be felt across the agricultural supply chain – from farmers without a market for their crops to meatpackers and ranchers that rely on local ethanol plants for animal feed and carbon dioxide.
As the COVID-19 pandemic continues to send shockwaves throughout the rural economy, America is counting on the farm belt to ensure an uninterrupted harvest of essential food, fiber, and fuel. And the biofuel industry is a critical link in that supply chain. Keeping these plants online will be vital to preventing shortages and price spikes in America’s grocery stores.