| NEW YORK
NEW YORK Feb 3 U.S. ethanol producers pumped
out the biofuel at a record pace last week, but higher output
belies growing concern in the industry that policy changes in
the United States and China could upend demand for their
The ethanol industry in the United States has grown
dramatically over the last decade as the biofuel volumes
Washington required oil firms to blend into gasoline and diesel
rose toward targets set by Congress in 2007. Demand for ethanol
from China, Brazil and Mexico gave added momentum to industry
U.S. ethanol producers pumped at a record 1.06 million
barrels per day (bpd) last week, up over 10.5 percent on the
year, according to the U.S. Energy Information Administration.
But for some in the industry it is time to slow down.
Inventories are at a nine-month high, consumption of gasoline is
at a seasonal low and the impact of domestic and international
policy is clouding the ethanol demand outlook.
During the past two weeks, ethanol production margins have
turned negative, according to data from Iowa State University,
after staying positive for a year. Ethanol and corn futures
indicate weak margins ahead.
"People need to slow down; margins aren't good. We're
oversupplied. We have record production week after week during a
time of seasonally low demand," said Neil Shah, a trader with
Biourja Trading LLC in Houston.
To be sure, margins are typically at their worst during the
first quarter, and many companies hedged when prices were strong
Strong balance sheets may insulate the likes of Green Plains
Inc, Archer Daniels Midland Co and Valero
Energy Corp from weakening margins. Valero on Wednesday
reported higher than expected profits in part due to strong
ethanol prices in the fourth quarter.
It is unclear what President Donald Trump's team plans for
biofuels. The acrimonious debate over the federal biofuel
mandate pits two of his core support bases against each other -
Big Oil and Big Corn. Oil firms complain the program drives up
gasoline prices, while the corn industry has lobbied hard for a
program that consumes millions of tonnes a year of the grain to
"It's not like we're getting ready to jump off the grain bin
or anything, but is there a little bit of concern? Yeah," said
Monte Shaw, executive director of the Iowa Renewable Fuels
"I'm still optimistic about the Trump administration, but
I'm not going to lie and say there aren't people out here asking
Trump has voiced support for the ethanol industry and the
biofuels program, which has brought jobs to the Midwest. He has
also installed critics of the program in key roles within his
A worst-case scenario for biofuels would be if the
Environmental Protection Agency (EPA) lowered domestic biofuel
That would leave ethanol makers idling plants and stem
investment in advanced renewables made of plant waste. The
purpose of the U.S. Renewable Fuel Standard, enacted by former
President George W. Bush, was to drive innovation and commercial
use of these fuels.
In November, the EPA hiked biofuels requirements for 2017
more than expected. Trump put that mandate on hold, sending
prices of renewable fuel credits tumbling.
Trump's controversial pick to head the EPA, climate-change
skeptic Scott Pruitt, has described the program as flawed. In
Senate hearings last month, he said he would follow Congress'
guidance on the plan.
The ethanol export euphoria of 2016 has been undercut by
taxes on imports imposed by China in January, choking off a
potentially huge future growth market.
In the first 11 months of 2016, China was the third-largest
U.S. ethanol buyer, taking 179 million gallons or just under a
fifth of international shipments. Before the ban, U.S. traders
had expected China to buy as much as 200 million gallons in
Trump's hawkish stance on foreign trade has prompted concern
that a trade war could hurt ethanol exports to other markets
such as Mexico.
(Additonal reporting by Michael Hirtzer in Chicago; Editing by
Simon Webb and Cynthia Osterman)