Bullish on Ethanol

November 2, 2011 11:54 AM

As long as the U.S. mandate stays in effect, demand for corn-based ethanol will remain near present levels, says Corinne Alexander, an ag economist at Purdue University. Even the elimi-nation of the 45¢ blenders’ credit is unlikely to impact the amount of corn used for ethanol.

One additional reason Alexander is bullish on ethanol is that the current price of world sugar is at record levels. As a result, the U.S. is exporting 1 billion gallons of ethanol, equal to 500 million bushels of corn. Exports are largely going to Brazil because at the moment it’s more profitable for the country’s wet milling plants to make sugar from sugarcane than ethanol. The U.S. is also exporting ethanol to Europe and Japan.

The rise of U.S. corn used for ethanol nearly traces a vertical line, Alexander adds. "There has been a 20-million-acre demand increase in five years."

Because ethanol is unlikely to ration corn supplies much, Alexander looks for most of corn rationing to come on the feed side. With present prices of corn and wheat, she looks for more wheat to be fed to livestock. "The livestock sector can afford $7 corn, but if it reaches $8, usage will decline," she says. "We don’t have enough corn for each group, so the only way to ration is to increase prices."

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