US ethanol industry hit by midwest drought

Agricultural , Commodities , Corn , Energy , Food Jul 23, 2012 No Comments

Drought impact on ethanolEthanol production last week fell to the lowest level since the US government began tracking the data in June 2010 because the excessive heat and drought prompted plants to run at reduced rates.

In normal times, it’s said that up to 40% of the US corn crop is converted into ethanol which is then fed into cars. When the crop slumps this proportion is likely to rise. For a drought and a shortage of corn is not going to do much to change driving habits.

Watch Facing Drought, Farmers’ Crops Taking Heat on PBS. See more from PBS NewsHour.

On July 18, the USDA announced it was adding an additional 39 counties in eight states as primary natural disaster areas due to drought and excessive heat. In all, producers in 1,297 counties in 29 states are now eligible for disaster assistance, including the entire state of Missouri. A total of 61 percent of the continental U.S. is in a moderate to exceptional drought, according to the U.S. Drought Monitor.

The combined average of 18 states (which make up 92 percent of the 2011 corn acreage) shows that 69 percent of the corn crop is now in the fair, poor or very poor category—up 9 percent from the previous week. Last year the 18-state average put only 34 percent of the corn crop in the fair, poor or very poor category. Out of that same pool of states, Indiana, Kentucky and Missouri have the most very poor corn at 37 or 38 percent each. Illinois, Michigan and Tennessee came in with 25 percent or more very poor corn.

September corn futures prices last week closed sharply higher by +84.00 cents (+11.3%)  at $8.245 per bushel and posted a new record high. The September ethanolcorn crush margin last week fell by 15.9 cents to -28.7 cents/gallon.  Including DDGS, the September corn for ethanol crush margin fell by 15.9 cents to 9.4 cents/gallon.

 

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Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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