With much of the U.S. population on near complete lockdown due to the coronavirus pandemic, the question for the ethanol industry is how much are consumers reducing their fuel usage? Shelter-in-place orders at local and state levels have been enacted in recent weeks, but how these orders are interpreted, followed and enforced vary greatly. Add to that the fact that there is a lack of real-time data on gasoline consumption with which to gauge how much U.S. driving patterns have been shifted. So how big do we expect the losses in U.S. gasoline consumption to be?
To answer this, we utilize a unique source of data that has drawn more attention as the coronavirus has spread—cellphone mobility data from the U.S. population. The data give a localized idea of consumer mobility based on GPS information from their cellphones. If U.S. cell phone user movements are tracked over time, then a fairly clear picture starts to emerge about how much they are limiting their movements as compared to normal. Here we make use of these data to infer what it could mean for gasoline consumption and, in turn, ethanol disappearance. The data come from an intelligence company CubeIQ and we utilize county-level reports by week, as well as U.S. population estimates by county, to infer an overall U.S. mobility measure.
1. Using average mobility from January and February as a baseline, the bar chart below illustrates how average mobility in the U.S. is reduced relative to normal. The week of March 16 saw average mobility in the U.S. fall by 25 percent, but average mobility has dropped by 50 percent in the three weeks since then. Overlayed on the chart is a line representing how much of the U.S. population was under statewide shelter-in-place orders through this same period of time. Interestingly, about half of the U.S. population has been put under shelter-in-place orders in the last two weeks, but mobility on average across the U.S. has remained relatively flat.
2. Taking these mobility numbers as an indicator for driving, this suggests a fairly substantial reduction in gasoline usage of 50 percent per week as long as the shelter-in-place orders are in effect. Indeed, this week’s slide in ethanol production showed a drop of 35 percent of weekly production as compared to 4 weeks ago—a sizable drop, but still likely not enough to match the free fall in gas consumption.
3. How long does this curtailment go on? While this week has seen both confirmed cases and deaths related to COVID-19 at their highest levels in the U.S. to date, there appears to be some glimmer of hope that this week will be the worst—with the much-anticipated curve flattening to follow. The White House has suggested the country could be in lockdown through the end of April. If so, and if we maintain this low level of mobility until then with a couple of weeks to get back to normal, the math would work out to 4 weeks of total lost gas/ethanol consumption. In corn terms, that would amount to roughly 425 MBU of excess corn that would have gone to ethanol that will now need to find another market. Livestock feed would likely absorb about 125 MBU of that 425 MBU not targeted for ethanol, but net corn usage losses are likely to be around 300 MBU.
4. But those numbers painted above could be worse if the coronavirus continues to spread unchecked. As the map below illustrates, the degree to which geographies have decreased mobility differs widely. The West Coast was aggressive early on to impose shelter-in-place orders. And although New York and New Jersey did have some early restraints in March, they were not as effective at reducing mobility. It could be plausible that more cases spread to areas less affected today, as mobility rates have only marginally reduced for the interior of the U.S. In other words, a quick turnaround to business as usual seems unlikely for the U.S., and that would imply that gasoline demand faces a longer tail on its way to recovery.
FBN believes a 425 MBU drop in corn use for ethanol could be a distinct reality in the coming weeks on a pre-coronavirus annual forecast of 5,425 MBU from USDA. On Thursday, USDA did revise their annual corn for ethanol forecast down to 5,050 MBU—a 375 MBU reduction. We expect corn prices to likely be trading in the $3.20 to $3.40 area on the futures market for the coming months without significant improvements on ethanol or export metrics every week.
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