U.S. ethanol plants expected to cut output on poor margins, oversupply

By Stephanie Kelly
July 19, 2019

NEW YORK (Reuters) – U.S. ethanol plants are expected to sharply curtail production in the weeks ahead as steep Midwest corn prices and the U.S.-China trade war have led to weak margins and oversupply, industry sources said.

Margins to produce ethanol in the Corn Belt – where most U.S. production takes place – have fallen to a four-year seasonal low, while ethanol inventories are at the highest seasonally since at least 2010. Production hit its highest seasonal level since 2010, the earliest data available.

Industry sources said this glut makes future cuts inevitable, particularly as corn prices are making production even more expensive. That could boost fuel prices, as U.S. law requires ethanol to be blended into gasoline.

“Plants have exhausted all resources and I think we will start seeing some real cuts to production,” said Josh Bailey, chief executive of Eco-Energy, a marketer and distributor of ethanol. He said most producers are losing money on every gallon produced given the weak margins. This downturn has been deeper than before, lasting more than a year instead of just a few months.

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