What is in this article?:
- Ethanol numbers may be more important in future corn marketing years
- Surge in production
• The decline in ethanol production was not associated with a decline in domestic consumption.
• The decline reflected a year-over-year change in the ethanol trade balance and a change in ethanol inventories.
Surge in production
Much has been made of the recent surge in domestic ethanol production and the re-opening of some ethanol plants. Based on weekly estimates from the EIA, ethanol production in the first two months of the 2013-14 corn marketing year of 2.226 billion gallons was about 7.5 percent larger than production during the first two months of the 2012-13 marketing year.
The increase, however, may not imply any substantial increase in domestic ethanol consumption, but instead may reflect changes in net trade and stock levels. Imports totaled only 23.5 million gallons in September and were zero in October.
Export estimates for those two months are not yet available, but would have totaled about 100 million gallons if the August pace was maintained. Stocks of ethanol were about 75 million gallons less at the end of October than at the end of August.
Domestic consumption in the two months may have totaled about 2.225 billion gallons, a year-over-year increase of about 2 percent.
Estimates of domestic consumption for September will be available with EIA estimates of production, trade, and stocks to be released in the last week of November. Importantly, estimated ethanol production during the first two months of the 2013-14 marketing year was 3.2 percent less than during the first two months of the 2011-12 marketing year.
For the current marketing year, the USDA projects corn used for ethanol and co-product production at 4.9 billion bushels. Actual consumption of corn could be somewhat different than that projection, depending on domestic consumption of ethanol, net ethanol trade, and the change in ethanol stock levels.
Domestic ethanol consumption will be influenced by biofuels policy and by ethanol prices.
Ethanol prices will in turn be influenced by corn prices. It is generally assumed that domestic ethanol consumption will be at least as large as in the past three years, near the 10 percent blend wall of 13 billion gallons.
However, if the EPA reduces the total and renewable biofuels mandates for 2014, as has been rumored, domestic consumption could be less than 13 billion gallons if obligated parties choose to use more of the RINs stocks to meet the renewable mandate.
That choice would likely be influenced by an assessment of the risk of EPA rulemaking being overturned by the courts.
On the other hand, maintaining the renewable mandates at higher levels and/or low corn and ethanol prices could stimulate E85 consumption and push domestic ethanol production above the 10 percent blend wall. Ethanol trade will also be influenced by biofuels policy as the size of the reduction in the advanced biofuels mandate for 2014 could influence the demand for imported ethanol.
Under blend wall constraints, ethanol imports substitute for domestic ethanol production.
A better indication of which ethanol and corn scenario will unfold will be available when EPA releases preliminary rule making for 2014. For the corn market, the implications may be more important for future marketing years than for the current year since it will influence the magnitude of needed corn production.
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