As expected, USDA reports published July 11 show ethanol usage grew slightly. But it’s unclear how the fuel will find much more demand, experts say.
"Old-crop ethanol margins have been phenomenal, they remain phenomenal," Angie Maguire, Citizens LLC, tells the U.S. Farm Report Market Roundtable. "Throughout the year, they’ve been good, we’ve been running at capacity. The biggest thing with ethanol is there’s only so much demand in that respect. With where we’re at right now from an old-crop perspective, well above 5 billion bushels, I struggle to see a continued growth in that to new crop, so I think we’re almost maxed out."
Maguire isn’t the only analyst who thinks ethanol’s path forward is challenging.
"There’s not a plant manager I talk to throughout the country who’s not trying to make their plant more efficient," explains Peter Meyer, PIRA Energy Group. "At PIRA, we’re a big energy research company, and our view is that gasoline demand is kind of static in this country. Can we get the E15, can we get the E85 out into more hands? I saw Alderman Ed Burke in Chicago saying he wants every station in Chicago to be able to dispense E15. Logistically, it’s just very difficult. Theoretically, I get it and I understand it. But are you going to rip up all of those tanks? How much money are you going to spend to do it? We can talk about that a little bit further in the show, but it’s a tough one, I just don’t see ethanol demand for corn increasing."
As for the corn and soybean crops, those figures aren’t terribly surprising either. PIRA expected yields to increase slightly but, Meyer says, "they’re subjective about it. Ultimately, I think the yield is probably a little bit higher, but I understand what they did. Instead, they compensated by lowering use, and that’s why the market kind of freaked out (Friday). But I don’t know what it should be a surprise, and I don’t really understand this price dump after the report."
For Maguire, the biggest surprise came with old-crop soybeans.
"They only reduced imports by about 5 million bushels, which I think at this pace, with the way the prices have been going, with the way the shipments have been going, I just don’t know if we’ll hit the 85 million bushel number that they’re expecting," she notes. "My ultimate favorite is the negative residual use of 69 million bushels. We basically gained through negative usage."
Click the play button below to watch the complete U.S. Farm Report Market Roundtable:
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