Ethanol use, weak margins impact USDA report

By Susanne Retka Schill | March 16, 2010
Posted April 12, 2010

Ethanol use and demand figured strongly in the April 9, USDA World Agricultural Supply and Demand Estimates. Though January ethanol production hit a record again, projected 2009-'10 corn use for ethanol was unchanged from the previous month's report. "Poor margins for ethanol producers and rising ethanol stocks limit near-term growth in production, despite strong price incentives for blending with a large discount for ethanol compared with gasoline," the report said. "The lack of growth in gasoline consumption is likely constraining ethanol usage."

That point was made again in a Friday USDA radio report where Gerry Bange, USDA outlook chairman said, "We've seen a sharp drop in ethanol prices. The return to ethanol producers that were very strong just a few months ago are nearly zero." Four months of record ethanol production and growing ethanol stocks were offset be stagnant gasoline use, raising the prospect that the E10 blend wall would soon be reached. "A lot depends on what we see in future legislation," Bange said, in regards to whether the ethanol blend limit will be raised.

The USDA reported in its Friday WASDE report that corn feed and residual use is projected 100 million bushels lower as March 1 stocks and the record January ethanol production indicate lower-than-expected December-February feed and residual disappearance. Corn ending stocks are projected 100 million bushels higher. The 2009-‘10 marketing-year average corn farm price projection is narrowed 5 cents on both ends of the range to $3.50 to $3.70 per bushel.

Sorghum feed and residual use is also lowered based on the March 1 stocks, offset some by a 10-million-bushel increase in sorghum food, seed, and industrial use. Strong demand for sorghum by ethanol producers in the Southern and Central Plains is supporting prices and limiting opportunities for sorghum feeding. The projected sorghum farm price is also narrowed 5 cents on both ends of the range to $3.10 to $3.30 per bushel.

World corn production for 2009-‘10 is raised 2.0 million tons with higher expected production in Brazil and South Africa where growing season conditions have continued to be especially favorable. Corn production is raised 2.5 million tons for Brazil as higher reported summer crop yields and higher winter crop area boost production prospects. Rains have continued to support yield prospects in the central west region, but additional rains through April will be critical to winter crop yields. South Africa corn production is raised 0.5 million tons as another month of rains in the western growing areas is expected to further boost yields in this traditionally more arid region. Other corn production increases this month include a 0.4-million-ton increase for Ecuador and a 0.2-million-ton increase for Turkey. Sorghum production is raised 0.4 million tons for Argentina with higher expected yields. Syria barley production is increased 0.4 million tons on higher reported area. Offsetting these increases are a 0.7-million-ton reduction for Mexico corn, a 0.5-million-ton reduction for Venezuela corn, and smaller reductions in corn output for a number of other countries.

Global coarse grain imports and exports for 2009-‘10 are largely unchanged on balance, but a number of adjustments are made among key importing and exporting countries mostly reflecting the pace of shipments to date. Corn imports are lowered 1.5 million tons for Mexico, but a 0.8-million-ton increase for Egypt and smaller increases for several Middle Eastern countries are mostly offsetting. Sorghum imports are lowered 0.2 million tons for Mexico but raised 0.1 million tons for Chile. Sorghum exports are raised 0.2 million tons for Argentina with the large crop, but lowered an equal amount for Australia. Global coarse grain ending stocks for 2009-‘10 are projected higher mostly on a 4.1-million-ton increase in corn stocks with most of the increase in the United States and Brazil.