The ethanol sector continued to recover during the fourth quarter of 2020 with production levels up 3.5 percent when compared to the third quarter, according to a new quarterly report released by CoBank’s Knowledge Exchange on Jan. 14. Margins, however, were down.

Average daily production was at 14.7 billion gallons or 90 percent of pre-COVID supply and demand during the fourth quarter, up from 14.2 billion gallons in the third quarter or approximately 87 percent of pre-COVID supply and demand during the third quarter.

According to CoBank, average daily operating margins for a representative Iowa dry mill fuel ethanol plant fell by 10 cents during the quarter to 11 cents per gallons. The report notes that input costs increased dramatically during the three-month period, with corn prices up 26 percent and natural gas prices up 19 percent.

CoBank said it is closely monitoring industry operating margins given the risk that ethanol fuel prices could stagnate relative to increasing corn prices. The report indicates, however, that facilities producing distillers grains coproducts may continue to see margin expansion should distillers grains values remain elevated relative to corn.

In the near-term, CoBank said the incoming Biden administration’s urgency in addressing climate change through its recommitment to the Clean Air Act will be a positive for the ethanol industry. Longer term, however, electric vehicles threaten to erode ethanol demand.

CoBank also predicted the production outlook for fuel ethanol could somewhat improve in 2021 if COVID-19 vaccine deployment fosters a return to workplaces.

For the U.S. economy as a whole, CoBank predicts it will be summer before the economy really begins to gain steam. The second half of the year, however, is expected to power the economy to annual growth of approximately 4.5 percent to 5.5 percent.

A full copy of the quarterly report can be downloaded from the CoBank website.