Sep 03, 2009
At a time when the trade is questioning USDA’s 2009/10 prospective demand for US corn, especially in the feed use column, it is refreshing to note the continued upward demand for corn for ethanol. According to the Energy Independence and Security Act of 2007, the United States is expected to manufacture 12 billion gallons of ethanol for calendar year 2010, or 14.3% more than a year earlier requirement of 10.5 billion gallons in calendar year 2009.
As you are able to view the trend increase for corn use for ethanol continues to be impressive vs feed use and equally important the US export campaign. USDA is calculating corn used for ethanol for the 2009/10 marketing year at 4.2 billion bushels vs Allendale Inc’s estimated use of 4.17 billion bushels, well above 2008/09’s corn use for ethanol of 3.65 billion bushels. This increased potential use for corn based ethanol continues to create greater distance from the corn used for exports since 2006 when demand for both fuel and exports were very near parity.
Two points to consider as to relevance of corn use for ethanol is number one, how the market share has grown from 6.3% of annual production in the year 2000 to a projected 2009/10 level of 41.7%. Secondly the projected use of corn for ethanol is expected to peak by the year 2015 by consuming 5.3 billion bushels, and may potentially draw closer to corn for feed use. It may be interesting to note within the June 2006 USDA “Amber Waves” publication, USDA was alluding to the prospects of as demand for US corn was anticipated to increase for ethanol and the US was emphatic it would also make sure US domestic demand was paramount by making certain there were sufficient supplies for feed use, those which may come up on the short end would be our less than loyal foreign demand customers. An interesting comment by USDA, but in 2007 when a number of North American wheat producing power house countries and Australia had weather related disasters, the world market placed increased demand on corn to make up for the wheat short fall despite a reasonably healthy US dollar. The increased year on year corn demand in 2007 for fuel, feed and exports was a precursor to some very exciting times.
Equally exciting is to witness how the ethanol processors are very near returning to a period of profitability as revealed in our most recent research. The graphic does suggest ethanol production will continue to increase to meet mandate levels, however, when negative margins are realized production may only meet, but not exceed, the mandates.
To summarized, US corn demand is alive and well and with the price of corn potentially bottoming as we approach the 2009 harvest, and the potential for a healing of the world economy, may help assist feed and export demand.
What are your thoughts with regards to corn use for ethanol? Are your local e-plants becoming more of a force with competitive bids? Are you willing to place forward contracts with e-plants or will you continue to utilize futures, options and basis risk management tools?
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