U.S. ethanol production has fallen to its lowest level since the government started collecting data more than two years ago, as poor demand and the high cost of corn prompt a series of plant closings.
Some signs are pointing to an improving market, but more closings could be coming without a reversal of the conditions currently hurting production and usage, some industry experts warned.
"Gasoline demand is down and that is the big driver," said R.J. O'Brien & Associates ethanol trader Julie Ward. "Withoutgasoline, you don't have anything to put ethanol in. We've hit a
Competition from imported South American ethanol is a factor as well, analysts said.
But one of the most critical pressure points for producers is the ongoing high cost of corn, said Neill McKinstray, president of the ethanol group for The Andersons Inc.
The Andersons, a top U.S. grain handler and owner and/or operator of ethanol plants with 330 million gallons of total capacity.
Corn has been hard to come by and is high priced after 2012 production dropped 13 percent to 10.8 billion bushels due to the devastating drought that gripped the U.S. Midwest. Some plants
have not been able to source enough affordable corn to continue to operate.
"Corn prices are a big factor," said McKinstray. "Until we produce a new and abundant crop of corn, we see challenges continuing. Unfortunately, with at least eight months to go before our next harvest, I think additional plant closures are likely."
Margins have been well into the red though recently have showed signs of strengthening and in some areas of the country are nearing break-even. But many producers have already been hit
"There has been a lot of cash burned at these plants in the last six months," Ward said.
Ethanol output fell to 770,000 barrels per day in the week ended Jan. 25, down 22,000 barrels from the previous week, the Energy Information Administration said. That compares to output of 939,000 bpd a year ago and 908,000 two years ago.
Meanwhile, stockpiles rose 2.3 percent to 20.54 million barrels in the most recent week.
The decline in production comes as plant closings and slowdowns have been accelerating. Of the 211 ethanol refineries in the country, 36 were idle as of Tuesday, according to the Renewable Fuels Association. That represents about 15 percent of the roughly 14.7 billion gallons of capacity, according to the trade organization.
On Tuesday privately held White Energy said a 120 million-gallon-capacity ethanol plant in Plainview, Texas, idle since Jan. 7, will remain closed through March and possibly until the last quarter of 2013 due to poor profit margins. Also this week, independent oil refiner Valero Energy Corp said it idled three of its 10 ethanol production facilities during the final three months of 2012.