FORT COLLINS, Colo. (Reuters) – Projected U.S. corn supplies are still waning toward multi-year lows despite dragging ethanol output, though recent production and demand figures along with an upbeat outlook for the summer driving season should instill some optimism over the corn-based biofuel.
In the four weeks ended April 9, U.S. ethanol output averaged 951,000 barrels per day, off the recent highs observed in November and December and 6.6% below the 2017-2019 average for the same period. That departure from normal is a post-pandemic best.
The latest production average reflects a slight downturn from the late March levels, somewhat consistent with seasonal trends for the time of year.
Ethanol output first diverged from typical levels in late March 2020 due to the onset of the coronavirus pandemic, so year-on-year comparisons should no longer be made. The three years prior to 2020 provide a good baseline for “normal” since they contain one strong, one weaker and one average year of production.
With demand recently outpacing production, U.S. ethanol stocks have fallen to seven-year lows for the date. Stocks totaled 20.5 million barrels as of April 9, down nearly 16% in two months. Trends in gasoline demand track well with ethanol output since almost all U.S. gasoline is blended with the biofuel. Last week, finished motor gasoline supplied to the market averaged 8.94 million barrels per day, the second-best week in the virus era. In the latest four weeks, gas demand was just 6% below the pre-virus average, the smallest post-pandemic margin.
Americans are itching to get out this summer after largely missing out on vacations in 2020. Travel spending by Americans last year plunged an estimated 42% and U.S. driving fell by 13% to its lowest level since 2001. U.S. passenger airline traffic dropped 60% to the lightest since 1984.
But the vaccination progress and an increase in travel bookings are already setting up a much busier summer. American Airlines said on Wednesday it expects to fly more than 90% of its domestic seat capacity in the summer of 2021 based on a boost in reservations.
By Wednesday, more than 37% of Americans had received at least one dose of a coronavirus vaccine and 23% had been fully inoculated, according to the Centers for Disease Control and Prevention. The pace of vaccinations has been increasing, but 70% of the population could be vaccinated by early June at the current rate.
Last week, the U.S. Department of Agriculture increased its 2020-21 corn use for ethanol estimate by 25 million bushels to 4.975 billion bushels, up 2.4% from 2019-20’s seven-year low.
On average, that forecast is down 9% from the previous three uninterrupted marketing years starting with 2016-17. Since the start of the current marketing year on Sept. 1, weekly ethanol production has averaged about 9.5% below the same period in those three years.
That indicates that ethanol output does not have to make a huge recovery going forward to meet expectations. In fact, if output through August maintained its recent 6-7% deviation from the previous years, corn use for ethanol could possibly rise by 25 million to 50 million bushels over USDA’s latest 2020-21 peg.
Good prospects for summer travel increase the odds for ethanol output and demand to inch even closer to normal levels into mid-year, though next year’s volumes are subject to greater debate as the economy continues to recover from the pandemic.
USDA in February tentatively slated 2021-22 corn used for ethanol at 5.2 billion bushels, down about 5% from pre-virus levels, though the agency will issue a fresh assessment next month. Any increase in this number will amplify pressure to new-crop corn supplies, which could be even smaller than the seven-year low predicted for 2020-21.
The opinions expressed here are those of the author, a market analyst for Reuters.