Ethanol production rises to record levels while domestic demand drops

Ethanol production is increasing and will likely produce record volume for 2018.

Renewal Fuels Association Executive Vice President Geoff Cooper said while it was true that production was up, domestic demand is down.

"On the supply side of the equation, we are seeing record supplies and expect that trend to continue," Cooper said in an interview with Iowa Business Daily. "But, on the demand side, we are definitely seeing weaker demand domestically."

Cooper said in the U.S. market, we are blending less ethanol today than we were a year ago and a lot of that has to do with the fact that the Environmental Protection Agency under former Administrator Scott Pruitt had exempted a large number of small refineries from blending ethanol under the Renewable Fuel Standard.

Geoff Cooper is the Renewal Fuels Association's executive vice president.   Contributed photo

"Because he gave them these exemptions, they have reduced their blending of ethanol, so demand is weaker in the U.S.," Cooper said. "But, that’s being offset by stronger export demands, and we are on pace for a record level of ethanol exports this year."

Cooper said that’s why a look at production rates and overall demand rates show an appearance of an increase, but, domestic demand actually is softer than it was a year ago while export demand is much stronger.

At the beginning of the year, fuel ethanol production capacity had reached more than 16 billion gallons per year, according to the U.S. Energy Information Administration (EIA).

In 2014, production capacity was just under 14 billion gallons and has steadily increased each year, according to EIA.

By state, Iowa leads in fuel ethanol production capacity, with more than 4 billion gallons per year. Nebraska, Illinois and Minnesota trail behind Iowa with just over 2 billion, just under 2 billion, and just over 1 billion, respectively, according to the EIA report. Cooper said the numbers really underscore the importance of robust export markets.

"If we didn’t have strong growth in exports currently, I think profitability for export producers would be lower," Cooper said. "We would have a glut of ethanol on the market and we certainly wouldn’t be seeing the record production levels in recent months."

Cooper said what that means for Iowa is growth in ethanol exports is helping to support growth in corn demand and help keep corn prices higher than they otherwise would be if they didn’t have this growth in ethanol exports.

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