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Corn has Competition as Ethanol's Leading Grain
In terms of ethanol production, corn has some competition this winter— grain sorghum. The grain, also known as milo, produces the same amount of ethanol per bushel, but uses one third less water in the process of creating the fuel. It is also used as feed, like corn.
“It looks like we’re going to use a bit less corn for ethanol production than we had anticipated a few months ago,” said Scott Irwin, agricultural chair at the University of Illinois at Urbana-Champaign. “Corn is losing some market share to sorghum in terms of feedstock.”
Although the USDA’s World Agricultural Supply and Demand Report (WASDE) forecast corn production as 99 million bushels higher bumping the national average yield up to 169.3 bushels per acre, the easiest way for Irwin to justify the USDA dropping 75 million bushels of corn used for ethanol in the WASDE report is the large and affordable supply of sorghum also available to ethanol plants this year.
What’s with all the sorghum?
When China blocked U.S. corn trade and upped its demand for sorghum a couple years ago, Paul Bertels, vice president of production and sustainability for the National Corn Growers Association, noticed a “tremendous spike” in U.S. sorghum production. At this point, China isn’t begging for U.S. sorghum, which has left a lot of affordable grain for use stateside. To be specific, sorghum exports are projected to be 105 million bushels lower than last year, according to the WASDE report.
Some ethanol plants are set up to run on sorghum, like plants in southwest Kansas, so those plants may be overwhelmed with the amount of grain offered for their use.
“The volume of ethanol production is expected to go up this year vs. last year (on a calendar basis),” said Jerrod Kitt, director of market information for The Linn Group. “The problem is that the percentage of milo used for ethanol is going to be ratcheted up a notch this year, because it's more plentiful than a year ago.”
Bertels is confident that individual farmers will most likely not notice a difference in the smaller quantity of corn being used for ethanol production, but those who typically have to transport their grain to a plant are more likely to be at a disadvantage.
“The thing that’s working in our favor is that if you look at where that sorghum is in the Corn Belt, it’s not near these ethanol plants,” Bertels said.
Ethanol Production and Value
With oil prices swiftly declining, it’s an interesting time to evaluate the state of ethanol. According to Bertels, ethanol prices are not following the pattern of dropping prices like traditional fuels.
Groups like the Biofuel Infrastructure Partnership, a partnership the USDA is funding with $100 million, and programs like Prime the Pump, which helps fund ethanol infrastructure to get more ethanol blends available to consumers, are really helping to make ethanol more widespread.
According to the U.S. Energy Information Administration, the U.S. is producing 982,000 barrels of ethanol per day (41.24 million gallons daily). That rate is 36,000 barrels per day more than the U.S. was producing at this time last year. The Midwest is responsible for 896,000 of those barrels each day, which is 27,000 barrels above last year’s production in the Midwest.
Prices that ethanol plants are willing to pay for corn depends on the area of the Corn Belt. In Ohio last week, a Lima plant was offering +.35 while a Leipsic plant was buying for +.32. In the eastern Corn Belt, plants are also able to buy corn from foreign farmers for prices that compete with U.S. corn prices, Kitt said.
“Unfortunately, there’s a lot of corn in the world — not just ours (in the U.S.),” said Bertels.
Kitt knows that on the other side of the Mississippi, it is a different story. Farmers can find ethanol plants in South Dakota and Nebraska offering -.25 to -.30, he said. With an abundance of corn, they are able to make more of a profit than plants trying to break even in Indiana and Ohio.
To put all of this in perspective, the ethanol industry is expected to use 39% of all corn produced in the U.S. this year, according to the Agricultural Marketing Resource Center. Sorghum (milo) is expected to make up 3% of the total grain-for-ethanol consumption.
With prices in most parts of the agriculture industry down, Bertels is optimistic. “The only short-term up that I can see is really going to be ethanol — unless something changes,” he said. “We’ve seen some fairly decent E15 sales in local markets when the retailers have really tried to sell it.”
He believes that consumers will continue to purchase larger vehicles with these low gasoline prices. That factor, alone, could be a push for ethanol demand.