New forecasts for the U.S. ethanol industry paint a far brighter picture than those in recent months that called for production to pretty much flat line. More buoyant numbers are emerging already. Production in 2014 will reach 14.2 billion gallons in 2014, a new all-time high. That would eclipse the previous high water mark of 13.9 billion gallons in 2011, according to estimates from the Renewable Fuels Association. Not only that, 2014’s output would be about 900 million gallons more than in 2013.
True, the 10% or 13.8 billion gallon blend wall is real for the moment but exports have soared this year, providing a way around it, says Wallace Tyner, ag and energy economist at Purdue University. Largely due to the strongest exports in 2.5 years, "even 14.5 billion gallons of production this year is within the realm of the possible," he says. Tyner sees 2014 exports in the 800 to 1 billion gallon range.
That’s a sea change from last June-August, when the U.S. was a net importer of ethanol. In total, the net for farmers would be upwards of 5.25 billion bushels in corn demand from ethanol this year, up about 450 million bushels from 2013.
Put on your rose colored glasses for the longer term. By 2023, U.S. ethanol production will total 18.8 billion gallons, a 41% increase from last year, according to a new 10-year global agricultural forecast by the Organization for Economic Cooperation and Development (OECD) and the Food and Agriculture Organization (FAO) of the United Nations. Were all of the 18.8 billion to come from corn, it would represent a 6.8 billion bushel corn market. A small part of the growth is expected to be cellulosic, although by 2023, the report says that cellulosic ethanol will only fill 12% of its mandate.
"Global ethanol trade is set to increase strongly," the report says.
OECD predicts that the corn ethanol mandate will level out at 15 billion gallons, with the blend wall reaching its maximum level of 14% by 2020, up from today’s 10%. "From 2016 onwards, corn based ethanol is excess (of that) is expected to be exported," OECD/FAO says. However, by 2023, the U.S. becomes a net ethanol importer, mostly from Brazil to fulfill the advanced biofuels mandate, the study says. But in a two-way trade that’s already been happening, the U.S. also exports ethanol to Brazil over the next decade. Today, Brazil is the second largest market for exports of U.S. ethanol. Canada and the European Union are also expected to be growing markets for U.S. ethanol.
OECD/FAO predicts that by 2023, 45% of the world’s ethanol will be produced in the U.S., followed by Brazil, 31%; the European Union, 8%; China, 5%; India, 2%; and Thailand, 1%. Worldwide, ethanol use reaches 41.7 billion gallons by 2023.
Some paint an even more upbeat long-term picture for ethanol exports. Chad Hart, ag economist at Iowa State University, doesn’t see U.S. ethanol exports as a short-term phenomenon. He predicts growing ethanol exports in coming years "with China leading the way." China is expected to increase liquid fuel usage 222% from 2007 to 2035, followed by India, 168%, and Africa, 148%. Hart believes this is an opportunity for the U.S. ethanol industry. "China has an incredible pollution problem," Tyner says. "It needs a clean fuel."
Unlike robust trade expected for ethanol over the next decade, OECD/FAO expects biodiesel trade to increase only slightly, with Argentina the main exporter followed by Indonesia. However, global biodiesel production is expected to increase by 54% from 2013 to 2023.
In the U.S., the study expects the biodiesel mandate to remain at 1.28 billion gallons. U.S. biodiesel consumption is projected to increase and to be above the mandate in every year. One reason why is the ethanol blend wall, thus biodiesel helps fulfill the advanced and total mandates of the Renewable Fuels Standard. "Biodiesel should therefore capture a share, lowering the need for imports of sugarcane based ethanol."