A new report forecasts ethanol production is on pace to exceed domestic and export demand as producers continue to reinvest last year’s profits into facilities and additional production capacity.
The report from CoBank on “Ethanol’s Growth Path: Output and Export Uncertainties Both Rising” outlines predicts that the ethanol market will soon face worsening profit margins, which could potentially push the industry toward consolidation. However, producers that are well-capitalized with strong balance sheets and cash reserves will be in the best position to weather the softening market.
“Forecasts indicate that total ethanol production by 2020 will have increased by approximately 850 – 900 million gallons, compared to 2017 levels,” said Tanner Ehmke, CoBank senior economist. “Without a substantial increase in domestic demand or exports to clear excess supplies, ethanol producers are facing a downturn over the medium term. Those who have access to multiple transportation markets and have invested in new technology will be leaner and more cost efficient, enabling greater flexibility to endure prolonged periods of low prices.”