Economists: China demand for soy outpaces ethanol use for corn

By Susanne Retka Schill | August 26, 2013

While ethanol from corn is often credited for agriculture’s current period of prosperity, Ohio State University economists say that China’s appetite for soybeans is a bigger economic driver.

Carl Zulauf and Nick Rettig, OSU Department of Agricultural, Environmental and Development Economics, have been writing a series of articles comparing the current and 1970 periods of farm prosperity. In the most recent analysis, posted on Farmdoc Daily, the pair look more closely at alcohol for fuel, pointing out that it was not a factor at all in the 1970 period of farm prosperity.

The share of total U.S. corn use for ethanol did not reach 5 percent until the 2001 crop, passed 10 percent by 2005 and 20 percent by 2008. In the marketing year just ended, ethanol use used 29 percent (net of the distillers grains coproduct, which is assumed to be 29 percent of the corn returned to the feed sector). Ethanol use for corn this year is expected to drop slightly to 27 percent as export and feed use are projected to expand more than ethanol use.

Increased demand for food was led by Soviet Union in the 1970s period of prosperity and by China in the current one. “China's imports of soybeans began to accelerate during the mid-1990s while the processing of corn into fuel alcohol began to accelerate during the early 2000s,” the OSU economists write. “By 2005, the year before the current period of farm prosperity began; corn for fuel alcohol was the equivalent of 8 million U.S. acres of corn while China's import of soybeans was the equivalent of 31 million U.S. acres of soybeans.”  Between 2005 and 2012, the expanded demand for corn for ethanol claimed the equivalent of an additional 19 million acres of U.S. corn, while China’s demand for soybeans added 31 million acres worth of U.S. soybeans.

The economists also look at the ratio of U.S. corn prices to crude oil, analyzing the breakeven ratio. The analysis suggests “the long-term decline in the price of U.S. corn relative to U.S. crude oil has reached the point where corn is at the least close to being a competitive source of energy without any government subsidy.”