During these months of sanitary and economic shocks, people used less transportation due to confinement. The drop in gasoline use was dramatic. We must also add the record drop in the price of oil for other reasons.
In the United States - world leading corn producer - 35% of this grain is used for ethanol production. Ethanol is mixed at a rate of 10% with gasoline. As fuel consumption decreased, there was an excess of ethanol, which caused its production to be reduced by 50% between mid-March and mid-April. And of course, the effect went backwards, on the chain.
But not only is the impact on corn, the basis of animal nutrition, but the production of co-products such as dried distillers grain with solubles (DDGS), a highly appreciated ingredient in animal nutrition, as well as corn gluten meal and corn gluten feed.
According to the U.S. Grains Council (USGC) weekly reports, by mid-April, DDGS price to cash corn values ratio had peaked at 185% in five years, from an average of 106%. Although DDGS is not widely used in many Latin American countries, there are others such as Mexico, which, given the proximity and ease of rail shipments, use it more frequently.
At the moment, everything seems to suggest that ethanol demand is recovering, although less than the average. The truth is that ethanol industry needs to evolve. An analyst at CoBank says that it is going to consolidate towards the most technological and efficient producers, but also that it has to diversify beyond ethanol. For example, offering high-protein distiller’s dried grains and other industrial products.
So, by using again cars and transportation, changes in animal nutrition and, obviously, in many other things, are motivated. However, recovery is not yet in the short term.
What do you think?
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