Updated April 1, 2020
As prices and demand for ethanol slump amidst the ongoing pandemic, fuel producers are reducing – or temporarily stopping – production.
At IGPC Ethanol in Aylmer production continues, albeit at a reduced capacity.
Ashton Nembhard, chief executive and operations officer for IGPC, says demand liftings are “off a minimum of 30 per cent” with their main customers, most of which exist within the Greater Toronto Area. That demand reduction is even higher with two of his company’s smaller customers.
Why it matters: Ethanol is an important market for grain growers, and an important source of feed for livestock producers.
In the United States, ethanol producers like Valero have announced many plants in the Midwest will cease operation.
A spat between OPEC countries resulted in plummeting oil prices just as the COVID-19 crisis hit, greatly reducing demand for oil and fuel. That’s resulted in prices for gasoline in Ontario that are close to half of their peak.
Production at IGPC’s recently expanded Alymer facility has been dialed back to 75 per cent capacity as of late March. The expectation for April is operations will continue somewhere between 65 and 75 per cent capacity.
“In the margin environment there’s been an absolute collapse,” says Nembhard. “There is some demand for corn and corn prices haven’t responded in kind. We’re not getting any help from our main feedstock input.”
However, he adds current production numbers will be revisited during another board meeting in two week’s time – specifically because the rapidity of change given current societal conditions makes it difficult to concretely define long-term predictions.
IGPC forward purchased corn on up to the 75 per cent or less volume where they will likely be processing, says Nembhard.
With plants across Ontario reducing production, demand for grain will drop.
“Our corn purchases will be down by that amount in the month of April.”
John Wilkinson, one of the board of directors for Greenfield Global, also says plants across Ontario are all reducing production. Unlike some ethanol producers in the United States, however, he is not aware of any instances where those buyers have completely ceased operations and subsequently defaulted on grower corn contracts.
Lack of storage infrastructure
Critically, Wilkinson says the precipitous drop in ethanol demand is being driven by a 50 per cent drop in overall fuel demand – which itself is being driven by the global COVID crisis.
Unlike petroleum production facilities, too, ethanol plant infrastructure is generally not designed for long-term storage.
“If they continue producing and its not getting into a car it has to go somewhere,” says Wilkinson.
“That has impacted the price of ethanol, which is experiencing historically low margins. There is no one in north America today making ethanol that is making money […] Every company is losing money on every litre they make for the fuel tank.”
Efforts being made to keep plant open
Nembhard and Wilkinson reiterate their overall goal is to keep the plant running in order to both keep their customers operating, and to support Ontario livestock producers.
Distillers grains, the byproduct of the ethanol production process, form an important portion of the diet of dairy and beef cattle in Ontario, and it has also been a revenue source for ethanol producers.
Like many businesses, part of the effort to keep the plant running comes from reorganizing day-to-day operations. This includes reducing the number of employees at the plant (staff not essential to plant operations have been asked to work from home), limiting or negating in-person interaction between employees, as well as truck drivers.
Similar procedures have been adopted by Greenfield, such as restricting travel by employees between the company’s various sites.
“What we’re focused on, because we need to stay in production, is keeping our people healthy,” says Wilkinson.
“Governments both provincial and federal understand what the challenges are for the ethanol industry, and for farmers. There has been no decision yet but there has been no problem getting our message to them.”
Vomitoxin and price fallouts characterized Ontario’s ethanol business environment when Nembhard took his current position in 2018. That bookend plus the current COVID-19 situation, he says, has made for “challenging times” in the industry.
Updated to include information from Greenfield Ethanol.