KEARNEY — Most COVID-19 effects on agriculture, such as drops in commodity prices, aren’t obvious to the public.
That will change Tuesday when the KAAPA Ethanol Ravenna plant is idled until fuel demand and prices rebound.
“We decided Monday to bring down the Ravenna plant,” KAAPA Ethanol Chief Executive Officer Chuck Woodside told the Hub. “... If the economic situation changes, we can restart. We certainly are evaluating it daily.”
“This is not a financial decision, it’s a demand issue,” he emphasized, adding that other ethanol processors in Nebraska and other parts of the country also are idling plants or considering doing so.
There will be no reduction in Ravenna plant staff. “There’s a lot of work we can get done,” Woodside said. “This is not going to last forever.”
Full ethanol processing will continue at the KAAPA Ethanol plant west of Minden.
Annual ethanol processing capacity is 135 million gallons at the Ravenna plant and 80 million gallons at the Minden plant.
Woodside said livestock producers in the region who use wet distillers grain — a coproduct of processing corn into ethanol — as a feed product still may buy and load it at the Minden plant.
He added that corn will be sold to cattle feeders as needed to fill the gap in overall distillers grain available from KAAPA Ethanol as a result of idling the Ravenna plant.
Both ethanol plants will continue to fulfill contracts, post bids and accept corn deliveries. Woodside noted that bids are “dramatically different now than they were three weeks ago,” which is true for most agriculture commodities.
Corn and soybeans also can be delivered to the KAAPA Grains elevator at Elm Creek.
“Our ultimate hope is that we’re going to get corn (markets) back up soon,” Woodside said, adding that if export markets reopen, the Elm Creek site could be much busier.
Supply and demand
“Today, it’s a market demand story,” he said about why low prices in early 2020, which already produced tight margins for the ethanol industry, continued to slide with every virus-related school, business and event closing.
When asked if reports that ethanol producers now are selling fuel at 25 cents per gallon below cost, Woodside said that’s about right.
His example of the slide tracks the per-gallon price paid for ethanol delivered at Chicago. It was $1.27 on March 2, $1.18 on March 13 and 95 cents by March 27.
Whether any money was made at those prices varied based on individual plants’ operations, efficiency and other factors, Woodside said.
“With the shelter-in-place orders, the gasoline price drops 70 percent. Ethanol is going to be the same, gallon for gallon,” he said.
Traffic cameras along highways and city streets across the nation show what has happened to fuel demand. Woodside said there still are a lot of trucks on U.S. roads, but not many cars.
Consumers excited about retail gas prices below $2 per gallon may not understand how that negatively affects ethanol and agriculture, Woodside said, or that it reflects a struggling overall economy.
“If they didn’t understand it before, I think they understand it now,” he said. “Cheap gas isn’t necessarily bad for us because people usually drive more. That’s not the case now.”
Woodside said there can be no place to unload ethanol if plants ship it somewhere, which is another result of the drop in immediate demand for fuel.
“We serve a market in California and the western part of the United States, and they’re shut down (economically),” he said.
The fuel supply-demand issue has been further exacerbated by an oil price and supply war between Saudi Arabia and Russia. They flooded the oil market even as the economy of China, the world’s biggest oil importer, came to a pandemic standstill.
“It’s a dispute on how much (oil) they should produce,” Woodside said. “The entire energy industry is having a very bad time ... It’s two ‘black swans’ at the same time.”
One definition of a “black swan” is an unexpected event of magnitude and consequence.
Worries for future
Woodside, who is a past chairman and current board member for the Renewable Fuels Association, said not knowing when the COVID-19 crisis will pass or what ethanol prices will be make it a “fluid” situation — no pun intended — for the industry.
National ethanol production capacity in 2019 was 16.9 billion gallons, according to the U.S. Energy Information Administration.
Woodside said University of Illinois economist Scott Irwin estimates ethanol demand losses during the next 2 ½ months — through the end of May — could be 740 million-999 million gallons.
Depending on how long the pandemic lasts, the supply-and-demand situation could cause 50 or more U.S. plants to be idled, Woodside said. “That the magnitude of what we’re talking about,” he added.
According to the Nebraska Ethanol Board website, Nebraska ranks second nationally in ethanol production with 25 plants and overall capacity of more than 2.5 billion gallons a year.
Nebraska’s economy gets a boost from the corn-ethanol-cattle relationship.
“It’s a very significant piece of how agriculture works in Nebraska and this part of the country,” said Steve Nelson, an Axtell farmer and Nebraska Farm Bureau president, which makes the ethanol industry’s viability so important.
“That’s a huge piece of the market for corn producers and for beef producers as a feed source,” Nelson said.
Woodside said KAAPA Ethanol has strong liquidity and is in a much better position economically to withstand the current “black swans” than some other plants.
“I wouldn’t doubt it at all if some plants in other parts of the country cannot weather the storm,” he said.
Woodside has heard talk within the ethanol industry that China soon may import $800 million worth of U.S. ethanol.
“That could change the dynamics pretty quickly,” he said, “... but we would be competing with a lot of cheap oil at this point.”