Feedgrains: ethanol tops stock for corn use in US

Jon Condon, 16/07/2011


For the first time in history, ethanol production has topped livestock feeding as the major user of corn supplies in the US.

The latest World Agricultural Supply and Demand Estimates report produced by US Department of Agriculture indicates that US ethanol producers are expected to use about 126 million tonnes of corn during the 2010/11 marketing year.

That will account for 37.9 percent of overall US corn consumption, eclipsing livestock feeding for the first time. Corn-based sweeteners (sugar syrup) and export were the next largest users.

USDA further increased its estimates of ethanol demand for 2011/12 to 128 million tonnes or 38.1pc of total use, making ethanol again the primary channel for the next US corn crop.

Much of the growth in US ethanol demand has been the result of government mandates for blending renewable fuels with gasoline, analysts Steve Meyer and Len Steiner wrote in the Chicago Mercantile Exchange’s Livestock Daily this week.

Under the mandate of the Clean Air Act, the EPA indicated that for 2011, a minimum of 62.7 billion litres of renewable fuels (ethanol) would need to be consumed in the US. That translates into a refinery requirement for about 125mt of corn.

“With talk of the Federal Government removing refiner tax credits and import taxes, the ethanol mandate will not go away and it will likely continue to increase into 2012 and beyond,” Mr Steiner said.

“Indeed, the main issue the US ethanol industry faces at the moment is that it is very close to hitting blending limits, hence the effort to increase blending limits to 15pc and moving some of these tax credits towards developing the infrastructure that will support E15 blends,” he said.

Another factor that has supported the growth of US ethanol demand in recent years has been the expanding export market. Higher fuel prices, a weak US$ and mandates for renewable fuels in other countries have supported this.

From September 2010 to May this year, US ethanol exports reached 2600 million litres, or the equivalent of 5.15mt of corn. One of the surprising export customers for US ethanol this year has been Brazil, accounting for 21pc of total exports. Much of the Brazilian purchases took place from March to May, as the Brazilian cane harvest was getting underway and domestic supplies were low.

Going forward, high sugar prices, a strong currency and strong domestic demand in Brazil would limit its ability to export to world markets, making corn-based US ethanol the dominant supplier in world markets, Mr Steiner said.

That would further pressure very tight US corn stocks.

Leading US meat and livestock industry analyst Steve Kay, said in last week’s US Cattle Buyers Weekly that livestock and poultry groups were using the most recent grain user report to continue their attack on US ethanol policies.

The groups launched a new web site, http://www.cornforfoodnotfuel.com/, to explain the connection between rising food prices and US Government support for corn-based ethanol.
US food prices are up (meat and poultry prices have risen 8.5pc) from a year ago and many consumers are asking why, the livestock groups say.

“The federal subsidies for corn-based ethanol are key contributors,” Mr Kay wrote in CBW.
“About 40pc of the US corn crop is now devoted to ethanol production because nearly all ethanol produced in this country is derived from corn. This increase in corn demand drives its cost higher, putting tremendous pressure on the livestock and poultry industries that traditionally have been major users of corn as feed.”

Corn prices have roughly tripled since the 2006 US Government decision to mandate that ethanol be blended into gasoline. The Consumer Price Index for meat and poultry has risen steadily with it, livestock groups say.


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