In the coming weeks ahead, U.S. ethanol plants will sharply cut down on their output. Reuters says it’s due to a steep rise in Midwest corn prices and the U.S-China trade dispute, which have both led to weak margins and oversupply.
Most U.S. ethanol production takes place in the Corn Belt. The margins to produce ethanol in that region have fallen to a four-year seasonal low, while ethanol inventories haven’t been this high in nine years. Industry sources told Reuters that the glut in ethanol means inevitable cuts, especially as corn prices are making production costs even more expensive. That could ultimately boost fuel prices.
“Plants have exhausted all resources and I think we will start seeing some real cuts in production," says Josh Bailey, CEO of Eco-Energy, which markets and distributes ethanol.
He adds most producers are losing money on every gallon of ethanol they produce because of the weak margins. Producers have been fighting with deteriorating market conditions for the past year.
Pacific idled parts of its plant in Aurora, Nebraska, late last year and has no near-term plans for a restart. Green Plains agreed to sell three of its ethanol plants to Valero, as well as suspended its quarterly dividend.