If anyone ever asks you how important ethanol is to South Dakota’s economy, you can summarize with three facts.
- Agriculture is the state’s No. 1 industry.
- Corn is the state’s No. 1 crop.
- Ethanol production consumes more than half of the corn that’s harvested in South Dakota.
That’s right, more than half.
In 2018, South Dakota farmers harvested 778 million bushels of corn, and ethanol plants used 396 million of those bushels to produce ethanol and co-products including dried distillers grains, according to The ProExporter Network. Last year – far from being a normal year, because of flooding and prevented plant acres – our state harvested 557 million bushels of corn, with 412 million going to ethanol plants. Ethanol production is projected to use more than half of our corn again this year. What happens to the rest? Livestock consume more than 100 million bushels and the remaining corn is exported.
If that doesn’t show how incredibly important the ethanol industry is in this great state, keep in mind that it employs about 2,000 people and supports thousands more jobs indirectly. Those jobs are a lifesaver in many rural communities.
Pandemic took a toll
2020 has been a crazy year for everyone, and the ethanol industry is no exception. At the worst moment for the industry, in late April, ethanol production and use fell by nearly 50 percent nationally and similarly in South Dakota.
Brian Jennings, CEO of the American Coalition of Ethanol, says many plants scaled back production while others shut down entirely. In South Dakota, which can produce well over 1 billion gallons of ethanol a year, plants ran at about 50% capacity. A number of plants helped combat the pandemic by shifting their processes to aid in the production of hand sanitizer. Some plants even donated the sanitizer they produced. Despite their own financial struggles, they wanted to do what they could to help.
The U.S. ethanol industry has the ability to produce 17 billion gallons of ethanol annually. By the third week in April, it was on pace to do only half of that. Gasoline use had declined by 50% and in turn so did use of ethanol, which is blended with gasoline.
Things are improving. Ethanol production is now 15-20% under capacity. But Jennings is concerned about the resurgence of COVID-19 in populated states such as California, Florida and Texas. Those three states consume 30% of our nation’s ethanol.
“We’re concerned as those states reinstate some shutdowns, what kind of dropdown that will have with use of fuel,” Jennings says.
Where does the ethanol industry expect to be by the end of the year? Jennings said the expectation is to be 2 billion gallons down in ethanol production for the year. Last year, the industry produced nearly 16 billion gallons of ethanol; this year the total is expected to be 14 billion. Last year, the nation consumed nearly 14.5 billion gallons of ethanol. This year, that’s expected to be under 13 billion. That amounts to a market loss of hundreds of millions of bushels of corn.
That’s not the only concern. When ethanol plants are operating well below capacity, that sends livestock producers scrambling to replace dried distillers grains as a feed supplement. That can be an expensive proposition for those livestock producers.
Supplier of carbon dioxide
Jennings says one of the overlooked benefits of ethanol is that the industry is a leading domestic supplier of carbon dioxide for food processing and the beverage industry. Those end-users, including meatpacking plants, really struggled to find commercial-grade carbon dioxide during these challenging times.
After the pandemic, there should be a greater appreciation for ethanol producers and their multiple products.
No one can predict how long the effects of the pandemic are going to linger, but ethanol production and consumption are expected to remain below pre-pandemic levels for the rest of this year and throughout all of 2021. Jennings says some ethanol producers that are operating today may not be operating next year.
Congress considers federal assistance
Although the pandemic has been devastating to the ethanol industry, it was somehow left out of the three financial stimulus packages approved by Congress. Jennings said industry leaders are cautiously optimistic that ethanol plants will be included in the next phase of payments. Congress is likely to take up that stimulus package before adjourning for its August recess.
“We have to get that stimulus package across the finish line, to the president,” Jennings said. “It needs to include relief for ethanol.”
Taking a longer-term outlook, Jennings is optimistic about increasing the ethanol market in California, which has a low-carbon fuel standard. Results of a research project could open the door to allowing 15-percent ethanol blends in that state as soon as late 2021 or early 2022. The E85 market is growing in California and Jennings says the E15 market would grow more quickly.
South Dakota Corn has had a leading role in research and data collection to prove that our ethanol is a low-carbon fuel that would meet California’s standards. We are also working with the American Coalition for Ethanol to establish a clean fuels policy in Midwestern states that could drive up the value of ethanol in our own backyard.
As for ethanol exports, which declined during this pandemic, Jennings is optimistic about ethanol use worldwide. Canada, particularly, will be one of the most reliable customers. Mexico is a promising market and India has emerged as a big potential market.
As for China, that country has a long way to go to meet its obligations in a phase 1 trade deal, but if they resume their efforts to mandate E10 throughout all of its provinces, Jennings says that would be “a game-changing opportunity.”