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Low Corn Prices Could Spark Ethanol Demand Rebound

December 11, 2013
USDA   money
  

By Jennifer Stewart, Purdue University

 

Low corn prices on the heels of near-record yields this year could mean increased demand from ethanol producers, export markets and biofuels consumers, Purdue Extension agricultural economist Chris Hurt says.

A proposal by the U.S. Environmental Protection Agency to reduce the amount of biofuels that oil companies must blend into gasoline and diesel from 18.15 billion gallons to 15.21 billion gallons in 2014 - including an implied reduction of corn ethanol from 14.4 billion gallons to near 13 billion gallons - initially appeared negative for corn markets.

But according to Hurt, even with the proposed reduction in the Renewable Fuel Standard, national corn use for ethanol might not drop below the 4.9 billion bushels that the U.S. Department of Agriculture has estimated.

"Now that three months of the marketing year have passed, there is growing evidence that corn usage for ethanol can reach, and even exceed, 4.9 billion bushels," he said. "We have to remember that RFS volumes are a minimum and production of renewable fuels can always be higher."

The primary demand for corn ethanol is the 10 percent blend with all gasoline sold in the U.S. The amount of ethanol needed to meet this demand depends on how much gasoline is consumed for the rest of this year and into next.

Hurt said he expected 2013 gasoline consumption to be near 133 billion gallons and slightly less for 2014.

"This means ethanol consumption will need to be about 13.2 to 13.3 billion gallons - a number that is above the EPA proposal and would require almost 4.9 billion bushels of corn," he said.
Another area of potential corn ethanol demand is exports. Low corn prices will eventually mean lower ethanol prices, which makes U.S. ethanol more appealing to foreign buyers. It also means the U.S. can produce its own ethanol cheaper than importing it, thus creating domestic demand.

Hurt said there are clear indications that exports will continue to grow, while imports have all but stopped.

"While it is still too early to make accurate predictions of trade volumes, net exports in the range of 400 million to 550 million gallons of ethanol might be likely," he said. "If so, that could add 150 million to 200 million additional bushels of corn use for ethanol.

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