AP NEWS

Dropping oil prices damaging Kansas ethanol industry

May 3, 2020 GMT

HUTCHINSON, Kan. (AP) — A sharp drop in gas prices around the world is challenging the ethanol industry in Kansas, with two plants currently idle and nine having decreased production by at least 40%.

Gas prices were declining before the coronavirus outbreak, but they have dropped by more than 50% since the pandemic began. Prices for ethanol, which makes up 10% of much of the fuel in the U.S., also plunged, The Hutchinson News reported.

As of April 20, the Renewable Fuels Association reported about 70 ethanol plants nationwide were idle and nearly 70 more plants had reduced their operating rates, leaving about 48% of the industry’s total production capacity offline and causing an estimated 46% reduction in sales.

“It’s a tough time in our industry,” said Mike Chisam, CEO of Kansas Ethanol in Lyons. “Crude oil has gone into negative territory. Gas demand is not expected to return to normal until 2021.”

In Kansas, Prairie Horizon Agri-Energy in Phillipsburg and the ELEMENT plant in Colwich are sitting idle. Most of the other plants in Kansas are running at 60% capacity. Officials at each plant are trying to keep their skilled workers.

“I don’t foresee any further slowdown in our production rate,” Derek Peine, general manager of Western Plains Energy in Oakley said. “My hope is we’ve seen the bottom of the demand curve.”

The decreased demand for ethanol has led to a drop in prices for corn, the primary ingredient in ethanol.

“We’ve seen corn markets decline larger than what we’ve seen for wheat and soybeans,” said Josh Roe, vice president of market development and public policy of the Kansas Corn Growers Association. “It (decline in ethanol use) has large economic shocks on the corn market.”

A temporary lifting of restrictions because of the coronavirus has allowed some plants to produce ethanol that is used in hand sanitizer.

Two plants – East Kansas Agri-Energy in Garnett and Pratt Energy – are selling their ethanol to distributors.

“The sanitizer is very beneficial for us,” said Bill Pracht, the CEO of the Garnett plant. “It’s priced better than fuel.”

Pratt Energy is producing about 10,000 gallons a week and distributing its product to Dodge City, Hutchinson, Kansas City, Oklahoma and Texas.

Both companies, as well as Kansas Ethanol, are considering producing hand sanitizer-grade ethanol permanently.