Floods shut nearly a sixth of U.S. ethanol production
22/03/2019 05:00
By Humeyra Pamuk and Jarrett Renshaw
MEAD, Neb./NEW YORK, March 22 (Reuters) - Massive flooding
in the U.S. Midwest has knocked out roughly 13 percent of the
nation’s ethanol production capacity, as plants in Nebraska,
Iowa and South Dakota have been forced to shut down or scale
back production following the devastation.
Production facilities owned by large companies like Archer
Daniels Midland Co ADM.N and Green Plains Inc GPRE.O were
still operating despite days of snowstorms followed by rains
that sent record floods into the Farm Belt. urn:newsml:reuters.com:*:nL1N21809A
However, with rail lines are washed out, and corn in storage
flooded, production is dropping off, sending prices spiking in
markets that buy the corn-based fuel.
The U.S. has some 200 ethanol plants capable of producing
1.06 million barrels per day, and about 100,000 to 140,000 bpd
of capacity has been taken off line due to the floods, according
to three traders who track operations.
Crop damage exceeds $400 million in Nebraska alone,
according to Nebraska officials.
The disruption comes as the ethanol industry is in the midst
of a historic downswing due to the ongoing trade conflict with
China and sluggish domestic demand growth that has led to high
inventories and weak margins. The floods will boost margins for
those still operating but could be punishing for firms digging
out from the water.
Ethanol plants use rail cars to deliver products to the Gulf
Coast, East Coast and West Coast markets. Ethanol delivered in
the Gulf Coast is trading at 15 to 17 cents per gallon above
Chicago's benchmark price 1ZEc1 , about double the average gap
for this time of year, traders said.
“It’s only to get worse. I think we are looking at a three
to four week situation. Typically, exports would help fill the
void, but we are being told that Brazil doesn’t have any excess
supplies,” said one trader.
Among the plants that have scaled back are ADM's plant in
Columbus, Nebraska, the largest in the United States, due to
flooding of a small rail line serving the plant, said Chris
Cuddy, president of Carbohydrate Solutions at ADM.
The company said on Thursday that production is still
limited without providing specific details, but traders said the
plant's production has been minimal. The plant can produce 413
million gallons annually, according to the Nebraska Energy
Office.
In Arlington, Nebraska, a rail line was overrun by water,
forcing its closure; contractors in the town said the line
transports agricultural products like corn to other facilities.
Roads to that line were also closed, and workers using diggers
could be seen pulling out debris and using heavy rocks to fill
holes.
“Transportation is definitely affected. All rail cars were
put on hold since last Friday and they were not allowed to be
sent out. We are not sure when it will be back to normal
operations," said Scott Tingelhoff, general manager at AltEn, an
ethanol processor in Mead, Nebraska, which produces about 24
million gallons of ethanol a year.
Mike Jerke, chief executive of Southwest Iowa Renewable
Energy LLC SWIOU.PK , which runs a 120 million-gallon-a-year
ethanol production plant in Council Bluffs, on the border of
Iowa and Nebraska, said he has had to cut production.
Corn farmers who provide feedstock are still digging out
from the flooding, and some have already determined some of
their supplies are unsuitable.
“Since this weekend, our rates have been day-to-day as we
manage the supply chain issues,” Jerke said.
Omaha-based Green Plains, which has a market value of $700
million, said its five Nebraska plants are dry, but they are
facing rail challenges around their Atkinson, Ord & Central
City, Nebraska plants. The company is looking for ways to work
around the flooding, such as unusual trucking routes, said
company spokesman Jim Stark.
“It may take a couple of weeks to understand the total
impact of the flooding,” Stark said.
(Reporting by David Gaffen
Editing by Marguerita Choy)
((david.gaffen@thomsonreuters.com; +1-646-223-6064; Reuters
Messaging: david.gaffen.reuters.com@reuters.net))