M6 BARRON’S April 6, 2020
prices near record lows, with prices in
Chicago at 84 cents a gallon on April 3,
down nearly 34% from $1.2625 a gallon at
the end of February, according to Denton
Cinquegrana, chief oil analyst at OPIS by
IHS Markit.
Retail gasoline sales are down 50% ver-
sus last year, based on figures from gaso-
line stations throughout the nation, says
Cinquegrana.
The demand loss for gasoline comes
despite the lowest retail prices for the fuel
since 2016. The average domestic price for
regular gas was at $1.912 a gallon on April
3, according to GasBuddy.
Demand for ethanol tracksalong with
gasoline, but “we’re in unusual territory
right now” as ethanol is adding to the cost
of gasoline instead of reducing the cost as
it typically does, says Patrick De Haan,
head of petroleum analysis at GasBuddy.
Reformulated gasoline futures were at
69.16 cents a gallon on April 3.
“Since 10% of most gasoline is ethanol,
we usually see ethanol bring a lower gaso-
line price, not a higher one as we do right
now,” De Haan says. “The higher price
now may add a few cents per gallon to
gasoline,” so stations are likely blending as
little as possible to meet the Renewable
Fuel Standard requirements.
That, in turn, is “hurting ethanol pro-
ducers acutely now. Some distilleries that
produce ethanol have shut down com-
pletely,” De Haan says.
That worsens the outlook for corn de-
mand. In the short term, there’s talk of $3
a bushel corn prices, Gilbertie says.
Corn below $3 would be the lowest
since the Renewable Fuels Standard fed-
eral program was expanded in 2007, he
says. The program requires that U.S.
transportation fuel contain a minimum
amount of renewable fuels.
Below that amount, corn “would be
deeply under its cost of production, put-
ting future production at risk and making
any corn price near [$3] unsustainable for
very long,” says Gilbertie.B
COMMODITIES
Corn Prices Are Battered
By Ethanol’s Troubles
C
orn prices could drop to their
lowest levels in more than adecade as coronavirus-related
weakness in demand for gaso-
line pushes the cost of ethanol toward re-
cord lows.
The decline in gasoline demand due to
the widespread Covid-19 travel and work
restrictions, especially in the U.S., deeply
“affects the king of the ag markets—corn,”
says Sal Gilbertie, president and chief in-
vestment officer at Teucrium Trading.
U.S. motor gasoline demand was at
roughly 6.7 million barrels for the week
ended March 27, down 25% from just a
week earlier, according to the Energy In-
formation Administration. Most gasoline
has 10% ethanol content, and ethanol is
commonly made from corn.
Corn futures settled at $3.30 3/4 a
bushel in Chicago on April 3—the lowest
since September 2016 and down nearly
15% year to date.
U.S. ethanol use may see an estimated
total decline of 741 million gallons in the
March through May period, which would
result in a reduction of 256 million bushels
in corn ethanol use, according to a report
from economists at the University of Illi-
nois posted on the university’s daily farm-
doc website.
Adding to the concerns of excess sup-
plies, the U.S. Department of Agriculture
estimates total U.S. corn planted acreage at
97 million acres in 2020, up 8% from last
year.
“The ethanol story has deteriorated
rapidly” since the USDA’s Agricultural
Outlook Forum on Feb. 20-21, says John
Payne, senior futures and options broker
with Daniels Trading.
Even if actual corn acreage were down
by 10 million from the official estimate,
that would likely not be enough to keep
corn prices higher, he says.
The largest use of U.S. corn, roughly
40%, is for ethanol production. Ethanol
By Myra P. Saefong
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