Don't lose heart or courage
Posted on 03/25/2020
By Brian Jennings, ACE CEO
Remember being optimistic this year would be better than 2019? Before COVID-19 and an oil price war entered the fray?
Hopefully we can salvage 2020, but as I pen this column on March 24, the new reality for millions of Americans is to work from home and do their part to “flatten” the coronavirus curve, slow its transmission, and avoid overwhelming hospitals. About one-third of the U.S. population is under a “shelter-in-place” order. This “social distancing” means millions of people in the retail, restaurant, entertainment and travel industries are currently unemployed.
As our economy grinds to a halt, prices for oil, gasoline and ethanol have cratered – ethanol prices fell to all-time lows in March, leading plants to either slow down or shut down. All by itself, coronavirus is destroying demand for ethanol, but just to make matters worse, Russia and Saudi Arabia are fighting to see who can flood the market with cheaper oil.
Demand destruction could be on steroids for several weeks. Some forecasts estimate the lack of gasoline consumption caused by COVID-19 could reduce ethanol demand by billions of gallons and cut corn grind by hundreds of millions of bushels, taking money from the pockets of farmers and ethanol producers. For ethanol producers already harmed by trade wars and EPA’s abuse of small refinery exemptions under the Renewable Fuel Standard, the new crisis is yet another headwind.
The big unknown; how long will it last?
While conditions seem grim, I encourage us to consider something Winston Churchill said during World War II that has resonance now. "It would be foolish to disguise the gravity of the hour. It would be still more foolish to lose heart and courage."
Let’s not lose heart. Ethanol’s octane value means refiners will still need it to make sub-octane v-grade base fuel useable in cars. Those in the industry who have experience with industrial ethanol can pivot and supply the growing demand for hand sanitizer in response to coronavirus. What’s more, ethanol producers have diversified, enabling them to adjust and produce for low carbon fuel markets or increase co-product output in response to market signals. Now more than ever we need to exploit any advantage we have in a market. Nevertheless, none of these advantages offset the demand destruction we will experience on the sale of fuel ethanol across the U.S. and abroad, and we will undoubtedly see a rash of plant closures unless we are able to get emergency assistance from the federal government.
Let’s not lose courage. The American Coalition for Ethanol (ACE) is working hard, urging our elected leaders to act and mitigate the staggering impacts these unprecedented conditions will place on our industry.
When the Trump Administration was quick to buoy Big Oil’s concern about low crude prices by pledging federal purchases to fill the Strategic Petroleum Reserve, we immediately told the President and Congress they will also need to take action to help ethanol producers, and the farmers supplying them corn, who are suffering a proportional economic disaster.
We are helping key congressional allies advance emergency legislation to provide financial assistance to our industry, including a provision to increase funding for the United States Department of Agriculture’s (USDA) Commodity Credit Corporation (CCC) and to direct USDA to make CCC dollars available to ethanol producers.
We have heard from many producers who are concerned about keeping their workforce in the face of shutdowns, which is a common concern from other sectors of the economy dealing with COVID-19, so we are also talking to Congress about making certain that renewable fuel producers qualify for the kind of financial and unemployment assistance that other industries are likely to receive during this unprecedented time. These are but first steps. As the crisis unfolds, ACE will pursue other actions to support the industry.