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Short sugar supplies add to ethanol demand
Tight world supplies of
sugar are contributing to the demand for corn in Wednesday’s USDA in two ways,
by increasing exports of U.S. ethanol into markets usually served by Brazil,
and by increasing the demand for high fructose corn syrup, analysts told Agriculture.com
“The export market needs
ethanol because Brazil isn’t producing anything because sugar is too
profitable,” says Jerry Gidel, of North America Risk Management Services in
Chad Hart, an agricultural
economist at Iowa State University who tracks markets agrees.
“We’re exporting more
ethanol than we ever have,” he says.
In the February World
Agricultural Supply and Demand Estimate report USDA increased its projected use
of corn for ethanol from the January estimate by another 50 million bushels, to
4.95 billion bushels.
And it increased its
projection of food use by 20 million bushels, with 15 million of that due to
higher exports of high fructose corn syrup to Mexico, where it’s replacing
sugar in soft drinks.
The Renewable Fuels
Association said Wednesday that projected ethanol production may be too high.
“USDA may be slightly
overestimating corn for ethanol use,” RFA said in a statement. “Based on their
estimates, ethanol production between Sept. 1, 2010 and August 31, 2011 would
be nearly 13.7 billion gallons. The RFA is projecting 13.5 billion
gallons of production for calendar year 2011, which would be nearly 1 billion
gallons more than the Renewable Fuel Standard requirement of 12.6 billion
gallons this year. Even with 300-400 million gallons of export
opportunity, it seems unlikely the U.S. market could handle all the remaining
13.3-13.4 billion gallons. USDA may also be underestimating ethanol yield per
Both Hart and Gidel think
that the USDA projection is accurate, for now at least. Although ethanol plant
margins have recently fallen to break even or even slight losses, based on
futures prices of ethanol and corn, the industry has purchased cheaper corn on
contract and remains profitable.
But Hart expects tougher
times if prices continue to rise.
“This is a market in search
of a price point that will ration this crop out,” he says. “And we haven’t
found it yet.”