Two Kansas ethanol plants lay idle. The other nine decreased production – most by at least 40%.
As gas prices continue to decline, so do ethanol prices.
“It’s a tough time in our industry,” said Mike Chisam, CEO of Kansas Ethanol in Lyons. “Crude oil has gone into negative territory. Gas demand is not expected to return to normal until 2021.”
Before the coronavirus hit, gas prices were spiraling down due to negotiations between Russia and Saudi Arabia. Then came COVID-19, and prices fell by more than 50%. Prices for ethanol, which makes up 10% of much of the fuel in the U.S., plunged as well.
“It’s a competitive market,” Chisam said. “It was, even before COVID-19.”
According to the Renewable Fuels Association, gasoline consumption is now nearly 50% lower than at this same time last year. When gas consumption falls, so does the demand for ethanol.
Local and national impact
As of April 20, RFA reported that about 70 ethanol plants nationwide were sitting idle, and nearly 70 more plants had reduced their operating rates. According to RFA, at least 48% of the industry’s total production capacity is now offline, and the ethanol industry is expected to have a 46% reduction in sales.
Kansas ethanol plants are following this national trend. Kansas plants produce more than 600 million gallons of biofuel annually, which according to Kansas Renew, is worth slightly less than $1 billion.
Two plants idling
Prairie Horizon Agri-Energy in Phillipsburg has temporarily stopped production. Kansas’ newest plant in Colwich, the ELEMENT ethanol facility, also sits idle. Both plants continue to work on extended maintenance.
"Our primary reason for taking these actions now is the accelerating decline in demand resulting from the coronavirus (COVID-19) pandemic," Jim Pirolli, president of The Andersons Ethanol Group, said in a release.
Most of the other plants in Kansas are running at 60% capacity.
“Our business has been effected substantially,” save Dave Mog, the plant manager of Pratt Energy in Pratt.
Each plant, most of them in rural Kansas, is trying to keep their skilled workers.
“I don’t foresee any further slowdown in our production rate,” Derek Peine, general manager of Western Plains Energy in Oakley said. “My hope is we’ve seen the bottom of the demand curve.”
“It’s rough out there. It’s really rough,” said Ron Seeber, president and CEO of Renew Kansas. “It’s tough times for everyone.”
Ethanol plants were not on the Coronavirus Food Assistance Program. State organizations are asking they be included.
“Corn growers are part of the program,” said Sen. John Hoeven, R-N.D., Senate Appropriations Agriculture Subcommittee chairman. “We’ve discussed ethanol producers, as well. We haven’t come up with anything yet.”
Hoeven hopes to speak about help for the ethanol industry next week.
According to the USDA, nationally, corn used for fuel alcohol was at 434 million bushels in February. Because production has slowed, ethanol plants have decreased or stopped buying grains. In most cases, they have stockpiles.
In Kansas, only one plant relies solely on corn.
“We had two months’ worth of corn on hand,” said Bill Pracht, the CEO of East Kansas Agri-Energy in Garnett and vice chairman of Renew Kansas. “It’s been hard on the farmers, too. Their pricing has been bad. I just hope we’re able to start buying corn from them again.”
The cutback in ethanol production has already led to a significant drop in corn prices, since corn is the predominant grain used in production. According to RFA, since early March, corn futures prices have fallen by 17%.
Out of the more than 800 million bushels of corn produced in Kansas each year, the Kansas Corn Growers Association says 27% goes to Kansas ethanol plants, 27% goes to Kansas livestock feed and 44% leaves the state.
“We’ve seen corn markets decline larger than what we’ve seen for wheat and soybeans,” said Josh Roe, vice president of market development and public policy of the Kansas Corn Growers Association. “It (decline in ethanol use) has large economic shocks on the corn market.”
The sorghum market is affected as well, but because of exports to China, not as badly.
Like with corn, sorghum sales follow a similar pattern. According to Kansas Sorghum, about one-third of the grain goes to ethanol plants, one-third to feed and one-third to exports.
“It’s a dynamic market dependent on the price of oil and export demand,” said Jesse McCurry, executive director of Kansas Sorghum. “Kansas and Texas accounts for 74% of sorghum production.”
As to where the farmer sells, it’s dependent upon price.
“Livestock producers have seen a decrease in distiller’s grains, a product produced at the ethanol plants,” Roe said. “So they’ve had to seek alternatives.”
Currently, all the fuel-based ethanol plants in Kansas can only produce fuel-grade ethanol. But, because of the temporary lifting of restrictions due to the coronavirus, some plants are producing ethanol that can be used in hand sanitizer.
“It’s forcing everybody to look outside their normal markets to increase their revenue stream,” Chisam said. “We’re working on trying to get different types of permits.”
Two plants – East Kansas Agri-Energy and Pratt Energy – are selling their ethanol to distributors.
“The FDA put a waiver to use fuel-grade ethanol for hand sanitizer. They removed the excise tax until the end of the year,” Pracht said. “Most of our sales have gone outside the state to Texas, Florida and Louisiana. We’ve had some sales in the Kansas City area.”
For now, plants using their ethanol for hand sanitizer must not complete the last step — placing gasoline into the product, so it will not be used for non-fuel purposes. The smell of the ethanol is usually removed, as well.
“The sanitizer is very beneficial for us,” Pracht said. “It’s priced better than fuel. We load out in a different spot. They are very particular about contamination.”
Pratt Energy is producing about 10,000 gallons a week.
“We have the capability to do more,” Mog said. “If the demand is there, we can help meet that demand.”
Pratt Energy is distributing its product to Dodge City, Hutchinson, Kansas City, Oklahoma and Texas.
Both companies, as well as Kansas Ethanol, are looking into producing hand sanitizer-grade ethanol permanently.
“It would take a major investment,” Mog said.
Kansas Ethanol and Pratt Energy are also examining the feasibility of producing the alcohol needed for hemp processing plants.
“We’re hoping the federal government will make it feasible for us to produce it (hand sanitizer),” Seeber said.
All the plants are maintaining social distancing and extra sanitization as mandated by the coronavirus protocol.
“We have a nice supply of alcohol so we can sanitize frequently,” Mog said.
On Tuesday, Rep. Abby Finkenauer, D-Iowa, introduced the Clean Fuels Deployment Act of 2020. The bill provides funding for installing and converting fuel pump infrastructure to deliver higher blends of ethanol and biodiesel. The legislation is co-sponsored by Reps. Angie Craig, D-Minn.; Don Bacon, R-Neb., and Roger Marshall, R-Kan.
“Once we get beyond the pandemic,” Seeber said, “I’m optimistic that the biofuels industry will rebound, as will the oil industry.”