Tight corn supplies should spur increased efficiency, RFA says

By Kris Bevill | September 12, 2011

The USDA once again downgraded expectations for the fall corn crop in its latest World Agricultural Supply and Demand Estimates report, reducing the expected overall yield from last month by 417 million bushels down to about 12.5 billion bushels. The USDA said in its report that the reduced expectations were the result of an unusually hot and dry summer taking its toll on the crop throughout much of the Corn Belt. However, despite the anticipated reduced yield, the agency still expects this year’s corn harvest to the third highest ever with the second highest planted area since 1944.

The anticipated amount of corn to be used for ethanol was also reduced in this month’s WASDE report - down 100 million bushels from August. The USDA said higher expected corn prices and continued weakening demand for gasoline as anticipated by the U.S. DOE Energy Information Administration were factors in its decision to reduce corn for ethanol expectations. Corn for other uses was also reduced as well, however, including corn for feed. Jerry Gidel, an associate at North America Risk Management Services Inc., said the WASDE report offered “equal opportunity downgrading” for all corn users markets weren’t reacting significantly to the reduced yield expectations. Shortly after the report was released on Sept. 12, corn was up 8 cents on the Chicago Board of Trade, selling at around $7.44 per bushel.

Gidel said he believes ethanol producers might have an advantage over other corn users, such as poultry and pork producers, in that they have been in the market all year and perhaps locked in corn supplies when prices were down. The latest report still project 5 billion bushels of corn for the ethanol industry, an amount that Gidel said is likely in excess of what is needed to meet domestic demand. “The industry could use that much, but it will depend on how much we export,” he said.

Matt Hartwig, communications director for the Renewable Fuels Association, said the WASDE report confirmed the grain industry’s expectations and illustrated that all users of corn will need to “tighten their belts” and be as efficient as possible in their operations. “However, tight supplies and higher prices stimulate all end users to be as efficient as possible when using grain,” he said. “We fully expect the current dynamics will encourage ethanol producers to do everything in their power to continue to maximize ethanol yields. Equally important, we also expect farmers to continue to increase their productivity and, as happened in the past, respond to anticipated higher corn prices by producing more corn next year.”

Both Hartwig and Gidel pointed out the role distillers grains plays in contributing to the feed market and alleviating pressure on livestock producers’ costs for feed. Hartwig said the ethanol industry will produce nearly 40 million metric tons of distillers grains this year, but Gidel said there is not an agreed-upon formula to calculate the amount of distillers grains produced at ethanol plants so it’s difficult to accurately estimate total production levels.