Ethanol industry examines implications of record corn crop

By Susanne Retka Schill | November 11, 2013

The record corn supply has multiple implications for the ethanol industry. The USDA’s Nov. 8 supply/demand report pegged the 2013 corn crop at 13.989 billion bushels, a new record at more than 700 million bushels higher than the previous record established in 2009.

The Nov. 8 World Agriculture Supply and Demand Estimates projected ending stocks at 1.887 billion bushels, up 32 million bushels from September and the highest level of carryover stocks since 2005.  Of that, the report estimates 4.9 billion bushels of corn will be used to produce about 13.8 billion gallons of ethanol, unchanged from the September report.

Growth Energy CEO Tom Buis stated, “It is clear from this report that the food versus fuel debate over the U.S. renewable fuel policy can be put to bed.  Our farmers have once again proven we can produce abundant quantities of high quality food, feed, fiber and renewable fuel.”

The Renewable Fuels Association pointed out that this year’s crop is not only 7 percent larger than the previous record, but also 30 percent larger than last year’s drought-shortened crop, which includes a 2 percent decrease in planted acreage compared to last year as well. The average yield of 160.4 bushels per acre is the second highest on record.

 “It is truly remarkable that the second-best yield in history was achieved despite an extremely late, wet planting season and the so-called ‘flash drought’ late in the summer,” said Bob Dinneen, president and CEO of the RFA. “This year’s yield and record crop highlight the astonishing innovation and technological change occurring in agriculture. Producing a crop this size using 1980-era technology and average yield would have required 76 percent more harvested acres.”

The RFA also pointed out that one-third of the corn to be used for ethanol production will become high-protein, high-energy animal feed. On a net basis, 22 percent of the record 2013 corn supply will be used for ethanol. Livestock feed is projected to be the top use for corn at a projected 5.2 billion bushels. When feed coproducts from ethanol are included, livestock will consume the equivalent of 6.8 billion bushels, or 46 percent of the corn supply.

Dinneen continued, “This historic crop underscores the urgency of maintaining demand. Now, more than ever, the renewable fuel standard must stand as is. No cuts, no reductions. This country will be swimming in excess corn if the RFS requirements are cut.”

Ethanol production has declined slightly in recent years, as has the sector’s corn use, but the reasons are not obvious, wrote University of Illinois ag economist Darrel Good in his analysis on “Corn Used for Ethanol Production.” The Nov. 8 WASDE report estimated 4.648 billion bushels of corn were used to produce ethanol and coproducts during the 2012-13 marketing year. “That estimate is 371 million bushels less than the estimate for the 2010-11 marketing year and 352 million less than estimated use during the 2011-12 marketing year,” Good pointed out. “Domestic ethanol production declined from an estimated 13.796 billion gallons during the 2011-12 corn marketing year to an estimated 12.899 billion gallons last year.”

With domestic ethanol consumption nearly the same, the decline in ethanol production reflected a change in the ethanol trade balance and ethanol inventories.  “During the 2011-12 marketing year, imports were a modest 293 million gallons and exports were quite large at 1.095 billion gallons. The large positive trade of ethanol reflected, in part, reduced Brazilian ethanol production and exports stemming from smaller supplies and higher prices of sugar,” he explained. During the 2012-13 marketing year, U.S. ethanol trade was balanced. The difference of 793 million gallons in the trade balance between the two years represents about 285 million bushels of corn. “The difference in ethanol stock changes during the two marketing years represented about 59 million bushels of corn. When added to the difference of 285 million bushels of corn represented by the change in the ethanol trade balance, the total is very close to the 352 million bushel decline in the USDA estimate of corn use for the two years.”

Good also looked at the implications of possible changes to the RFS. “Domestic consumption could be less than 13 billion gallons if obligated parties choose to use more of the (renewable identification number) RINs stocks to meet the renewable mandate. That choice would likely be influenced by an assessment of the risk of EPA rulemaking being overturned by the courts.  On the other hand, maintaining the renewable mandates at higher levels and/or low corn and ethanol prices could stimulate E85 consumption and push domestic ethanol production above the 10 percent blend wall.  Ethanol trade will also be influenced by biofuels policy as the size of the reduction in the advanced biofuels mandate for 2014 could influence the demand for imported ethanol.  Under blend wall constraints, ethanol imports substitute for domestic ethanol production.” Any changes to the RFS may have greater implications for future corn marketing years than the current year, he added.