Corn Use in Ethanol Rebounds

July 22, 2013 03:35 AM
Corn Use in Ethanol Rebounds

After a year of reduced ethanol production, the industry is headed for better times.

According to USDA’s World Agricultural Supply and Demand estimates, corn used in ethanol fell from a high of 5 billion bushels in 2011 to 4.65 billion bushels in 2012. This year, USDA expects 4.9 billion bushels of corn to be used by the ethanol industry.

The latest estimate from USDA is an increase from its earlier estimate released in February of only 4.675 billion bushels for 2013.

Monthly corn used in ethanol dropped significantly in the summer of 2012 due to drought-induced higher corn prices that reduced margins for ethanol producers. "That use has started to recover," says Chad Hart, agricultural economist with Iowa State University.

"Gasoline prices have been staying at a fairly high level, which has also opened up ethanol margins again," says Hart. "When drought kicked in last year, the ethanol industry pulled back 10 to 12 percent. Over the past two to three months, though, the ethanol industry has come back into the corn market."

corn used for ethanol

Hart doubts that corn used in ethanol will breach the 5-billion-bushel mark next year, but it will be close. He expects ethanol plants to grind 4.9 billion to 4.95 billion bushels of corn in 2014.

Longer term, though, the forecast becomes a bit iffy, particularly if gas consumption continues to drop in the United States as consumers drive more energy-efficient vehicles. If gasoline consumption falls so will the overall use of ethanol, which is blended into gasoline.

U.S. gasoline use has fallen every year since 2007. The Energy Information Administration projects that gasoline consumption will steadily decline over the next 25years, dropping by about 7 percent.

Advanced Biofuels Flounder

Unlike the ethanol industry, however, advanced biofuels are floundering. Due to declining gas use and the economic viability of new fuels, investments into advanced biofuels, primarily those made from cellulosic materials, are evaporating, and it is unlikely the advanced biofuel industry, which does not include ethanol, will meet its renewable fuel mandates.

According to recent news reports, BP and Royal Dutch Shell Group both recently stopped funding four separate biofuel ventures due to slow or poor returns on investment. Exxon and Chevron pared back on biofuel investments earlier after failing to find a fuel that met their investment objectives.

"The mandate for advanced biofuels is flexible," says Hart. The bigger worry is whether ethanol will be able to retain its current share of corn use if gasoline consumption continues to ramp down.


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