The governors of Iowa, Minnesota, Nebraska and South Dakota sent a letter to US Agriculture Secretary Sonny Perdue on April 17 calling for financial aid for the US biofuel sector to help address “the economic harm and job losses that biofuel producers are suffering due to COVID-19.”
“As governors, we are concerned about our nation’s agriculture and biofuel sector during the unprecedented economic circumstances brought on by the national pandemic of COVID-19,” they added.
Ethanol plants use 40% of all corn grown in the US. In addition, biodiesel and renewable diesel producers currently use over 8 billion pounds of soybean oil per year, creating demand that adds 13% to the cash price of a bushel of soybeans, noted the governors.
“We have seen a significant drop in the price of corn and soybeans because of the decline in demand, and this puts our nation’s agriculture industry at great risk.”
Impact on DDGS, soybean, corn supplies
Reductions in economic activities resulting from social distancing and mandatory shelter in place rules arising from the COVID-19 outbreak have negatively affected the demand for gasoline and hence for ethanol, due to the 10% blend rule.
Due to the lack of profitability in ethanol production coupled with reduced demand for gasoline, ethanol producers are expected to either reduce their production levels or, in some cases, simply shut down their plants. Since a large portion of corn produced in the US - about 38% - is used to produce ethanol and its byproduct - DDGS for animal feed use - the lack of demand for ethanol will cause a large decline in corn demand, noted a Purdue University paper.
That report shows that the spread of COVID-19 in the US is expected to reduce the demand for both corn and soybeans due to reductions in demand for ethanol and soy biodiesel.
“The likely reduction in demand for corn is quite large and will boost corn ending stocks substantially, leading to a significant reduction in the 2019 and 2020 marketing year average prices for US corn. The expected reduction in soybean demand is significant, but it is much smaller than for corn and will lead to a much smaller impact on soybean ending stocks and marketing year average prices received by US producers than for corn.”
USDA package to keep US food supply chain robust
A newly announced US Department of Agriculture (USDA) package includes several actions to assist the country’s farmers, ranchers, and consumers in response to the COVID-19 national emergency.
It involves two strands:
Direct Support to Farmers and Ranchers: The program will provide $16bn in direct support based on actual losses for agricultural producers where prices and market supply chains have been impacted and will assist producers with additional adjustment and marketing costs resulting from lost demand and short-term oversupply for the 2020 marketing year caused by COVID-19.
USDA Purchase and Distribution: The USDA will partner with regional and local distributors, whose workforce has been significantly impacted by the closure of many restaurants, hotels, and other food service entities, to purchase $3bn in fresh produce, dairy, and meat. It will begin with the procurement of an estimated $100m per month in fresh fruits and vegetables, $100m per month in a variety of dairy products, and $100m per month in meat products.