PRE-COVID, 14 US ETHANOL PLANTS HAD ALREADY BEEN IDLED SINCE 2018; AN ADDITIONAL 44 WERE ADDED TO THIS NUMBER DURING THE PEAK OF THE CRISIS.
All of this follows on the back of a disappointing maize crop in the US last year due to an exceptionally wet planting season. Consequently feedstock prices were already high, and with the prospect of a 20- 30% loss of production, co-product prices exploded with an anticipated loss of between 1.5-4mmt of distillers grains (DDGS) for animal feed. Given that the US-China deal was prefaced with the caveat that purchases are dependent on market conditions, sales of DDGS to China now seem unlikely. Conversely, an estimated cut to ethanol production of 20% would release approximately 28mmt of US maize back into the market. Combined with the USDA’s predicted 97 million acres of corn which is already being drilled in the US, prices are likely to remain under pressure for maize, which is already trading at a significant discount to other feed grains.
Low oil prices, exacerbated by the OPEC/Russia dispute in March, have been equally damaging to the biodiesel industry, with oilseed processors winding down crush- rates in response to dwindling margins and difficult logistics. Whilst UK ports remain operational, export hubs such as Rondonopolis have threatened to close in response to Covid-19, and delays in Paranagua have hampered loading. This comes just months after one of Argentina’s major crushers declared bankruptcy. Meanwhile South American crops have quietly continued to develop, with Brazil reporting a record 120mmt of soybeans, though bad weather in Argentina has caused estimates there to be revised down to sub-50mmt from expectations of 57mmt back in October.
Palm oil suffered a similar spectacular collapse from highs despite a 16% fall in production at the end of the year. This in turn stirred the products (namely palm kernel expeller) back into life following 6 months of depressed, tightly rangebound prices. Demand was first stoked by drought in New Zealand during their summer months and availability squeezed due political disputes (this time, Malaysia and India regarding the status of Kashmir) and latterly by threatened closures of plantations and load ports in the origin to stem the spread of COVID-19.
In all, a turbulent few months to say the least, driven as much external factors and politics as much as by market fundamentals. This looks set to continue well into the summer as the inevitable fallout from Covid-19 starts to become clear and we begin to look at weather in the US as we enter the growing season as well as the state of Brazil’s Safrinha harvest to come in June.
Nick Halle E:
nick.halle@adm.com T: +44(0) 7818 572 541
15 | ADMISI - The Ghost In The Machine | Q2 Edition
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