Illinois economist: Corn-for-ethanol demand to remain strong

By Susanne Retka Schill | June 08, 2015

Demand for corn for ethanol production appears to be on solid footing, writes University of Illinois ag economist Darrel Good, in his column “Weekly Outlook: Assessing Corn Demand for Domestic Ethanol Blending,” distributed by FarmDocDaily. 

“Corn consumption for ethanol and co-product production is driven almost entirely by ethanol demand, not by co-product demand,” Good said, and the U.S. EPA’s recently revised renewable volume obligation (RVO) proposal provides an opportunity to reassess corn demand.

Good’s analysis builds on a lengthier analysis published a week early written by Good and his colleague Scott Irwin, “The EPA's Proposed Ethanol Mandates for 2014, 2015, and 2016: Is There a 'Push' or Not?” 

Together, the reports help interpret the impact that EPA’s RVO will have on corn ethanol. The 2015 RVO represents a small increase over 2014, reflecting expectations, Good said, “that total gasoline consumption will increase by about 1.4 percent, but the ethanol inclusion rate will decline from 9.84 percent in 2014 to 9.66 percent in 2015 so that the effective blend wall declines from 13.43 billion gallons in 2014 to 13.36 billion gallons in 2015. If cellulosic and other advanced ethanol consumption reaches 282 million gallons, the effective blend wall would limit consumption of conventional ethanol to only 13.078 billion gallons. The difference between the proposed standard of 13.4 billion gallons and the effective blend wall for conventional ethanol of 322 million gallons would represent a gap that would have to be met by a combination of consumption of gasoline with higher ethanol blends (E15 or E85), consumption of additional advanced biofuels (biodiesel), and use of some RINs stocks.”

In 2016, if consumption of cellulosic and other advanced ethanol reaches 406 million gallons, he continued, “the effective blend wall would limit consumption of conventional ethanol to only 13.054 billion gallons.”  The EPA estimates 13.43 billion gallons of ethanol were used domestically in 2014.

Another feature of the RVO can influence the amount of conventional ethanol, he added. “While the EPA establishes the standards for conventional ethanol in volumetric terms (13.4 billion gallons in 2015 and 14 billion gallons in 2016) those standards are enforced on the basis of expected gasoline consumption.” With obligated parties required to blend at the specified rate, if gasoline consumption differs from the expected volume, ethanol consumption would be expected to differ as well. “As pointed out in the farmdoc daily article of June 3, 2015 domestic gasoline consumption so far in in 2015 is at a higher rate than projected in the May 19 EPA proposal. If that higher rate continues, and the provisions of the proposed standards are not altered, conventional ethanol consumption would be expected to exceed the minimum of 13.078 billion gallons for 2015.”

Good concluded the demand for corn for ethanol production appears to be on solid footing for the next 18 months, and while growth may be limited, a set-back is not expected. “At this juncture, it appears that domestic consumption of conventional ethanol in 2015 and 2016 will likely not decline from the 13.254 gallons consumed in 2014 if domestic gasoline consumption remains robust. Additionally, export demand for ethanol is expected to remain at or above the 850 million gallons of 2014. Exports during the first four months of 2015 pointed to annual exports over 900 million gallons.”