What's the potential for a bump in corn for ethanol?
In last week's issue it was argued that corn consumption during the current marketing year appears to be more responsive to lower prices than generally anticipated, particularly in the export market. The responsiveness reflects not only lower corn prices in absolute terms, but also in relation to the price of other feed ingredients. Arguably, corn has become one of the cheaper feed ingredients currently available.
In addition to increased feed consumption of corn in the domestic and foreign markets, there are also indications that domestic corn consumption could be boosted by growing export demand for ethanol. It is argued that the combination of generally high crude oil prices, and therefore high gasoline prices, in relation to ethanol prices will make ethanol an attractive source of octane around the world. With corn prices at current levels, U.S. ethanol is very competitively priced in the world market. Anticipating export demand for ethanol, however, is difficult, and opinions about the size of that market vary considerably. U.S. ethanol exports totaled about 400 million gallons in 2010, but ballooned to almost 1.2 billion gallons in 2011 as high sugar prices and limited Brazilian ethanol supplies boosted demand for U.S. ethanol, particularly in Brazil. Exports retreated to about 730 million gallons in 2012 as Brazilian ethanol production rebounded and totaled only about 620 million gallons in 2013. However, exports were on the rise late in the year, totaling 82.5 million gallons in November 2013 and nearly 65 million gallons in December 2013. Weekly statistics from the U.S. Energy Information Administration (EIA) suggest that exports have been brisk so far in 2014. Canada is the largest importer of U.S. ethanol, accounting for 45% of U.S. exports in December 2013. Brazil accounted for an additional 22% of U.S. exports. An additional 44 countries imported some U.S. ethanol in November or December 2013.
A combination of larger ethanol exports, increased domestic motor fuel consumption, and a final EPA rule making for the RFS for 2014 that provided more "push" for higher ethanol blends in the domestic fuel supply could provide for meaningful expansion in domestic ethanol production and corn consumption. The magnitude of ethanol imports will also factor into that potential expansion. With so many unknowns, it is difficult to quantify potential growth. However, there is not unlimited capacity to produce corn-based ethanol in the U.S. It is conceivable that with limited imports, growing exports, and expanding domestic consumption of ethanol that production capacity could be challenged at some point. That capacity, then, will determine the limit of growth in corn consumption associated with ethanol production.
The Renewable Fuels Association estimates the nameplate capacity of current biorefineries at 14.875 billion gallons, with an additional 165 million gallons of new construction or expansion underway. Translating that capacity into maximum potential for corn consumption is not straightforward for at least three reasons. First, it is possible for refineries to produce above nameplate capacity. Second, feedstocks other than corn are used in some refineries. Third, there is a variation in the estimates of yield of ethanol per bushel of corn processed into ethanol, and the yield can vary by the intensity of use relative to nameplate capacity. As a result, estimates of maximum corn consumption vary.