Corn farmers: the collateral damage in the oil crash

The prompt delivery Western Texas Intermediate crude oil has gone negative on April 20th. We have covered the reasons and timeline that leading up to that moment. While part of its negative 38 dollar price tag is technical with the prompt contract expiring, the crude glut and demand shock is real and persistent. With Covid-19 taking out most of the crude and refined product demands, corn farmers might be the biggest collateral damage in this process.

Currently, 30% of US-produced corn is used to refine ethanol (~40% if including exported corn used for ethanol), which then, in turn, is used to blend retail gasoline (as well as engine fuel, rocket fuel, etc). Nearly 2 out of every 5 bushels of production, grinding for ethanol is the largest end-use for US corn, even eclipsing feed/residual demand. In Brazil, one of the top three producers of corn and refiners of ethanol, gasoline at the pump contains as high as 25% corn ethanol. It has been touted as a cleaner and cheaper energy source, especially considering the refining process from crude to ethanol is more complicated and costlier.

Now with the diminished demand and the historic low oil price, the con-ethanol…