Thursday, January 07, 2010
Will We Produce Enough Corn And Soybeans To Refine Biofuels?
With 650 million bushels of corn still in the field, some of that will not be harvested, and yields will deteriorate on the rest. That calls into question the supply of corn available for ethanol refining in the coming year, along with the other demands on the 2009 corn crop. Will supplies tighten, and if they do, what does that do to ethanol profitability?The issue of grain availability for biofuel production has been addressed by Iowa State University marketing specialist Bob Wisner in the January newsletter of the Ag Marketing Resources Center. He says there is a modest tightening of corn supplies, based on the US 2009 crop and the early projections from South America for its 2010 crop. He reminds you of the severe financial crisis that beset the ethanol industry a year ago, with refiner bankruptcies punctuating the Cornbelt. That was caused by a slackening of the demand for gasoline, reduced corn carryover, and an acreage auction for 2009 commodities.
In 2009, the late planting, some failed acres, and some abandoned acreage may be offset by the healthy average corn yield on the acres that were harvested. Wisner says corn use for ethanol from the 2009 crop will not be as large as he anticipated last year, leaving more for export. He is expecting sufficient corn supplies in 2009 to meet the demand, in part from the help of a strong carryout. But he says the issue becomes how many acres are needed in 2010 to meet market demand. Wisner initially forecast a need for 83 million acres, but with a strong carryout the trend yield will allow a slightly smaller crop to meet the demand.
Wisner says, however, the ethanol industry is going to produce more than he anticipated. He says ethanol refiners will need 4.275 bil. bu. of corn to process in 2010, and 4.650 bil. bu. to refine in 2010-2011. With 5.3 bil. bu. needed for feed and 1.925 bil. needed for exports, there will be a carryout equal to a 4.9 week supply of corn. He says that surplus will decline slightly for the following year, but will remain marginally above minimum working stocks levels.
But will the growing season be perfect? Wisner says there is very little reserve to carry corn users through tight supplies that may result from adverse weather. And conversely a yield above the trend line would depress prices. Wisner says a crop that is 12% above trend would produce an additional 1.56 bil. bu. that would become a three month supply and dampen user interest in any aggressive pricing strategy.
The biofuels picture for soybeans is different in Wisner’s sight, as supplies tighten. While an abundant South American crop will fill any shortfall, US supplies will be tight and carryover will remain less than one month’s worth through 2011. Wisner says the short crop in South American began the concern, followed by EU taxation of imported biofuels, the land use issue raised by California environmental groups, and the uncertainty of the renewal of blending tax credits, which have not been approved.
Wisner’s soybean balance sheet shows soybean oil use for biodiesel growing from 2.200 billion pounds in the current year to 3.550 billion by 2011. To meet that demand, exports will fall slightly to allow a typical 1,700 mil. bu. in the domestic crush and 300 million in carryout. Wisner says soybean availability will not be a major constraint if South American crops return to normal. But he says the European import tax will hamper some exports and keep supplies sufficient.
Wisner says the shortfalls in South American soybean crops have tightened US supplies as well as the supply available for biofuels, but he says it is not significant. One development that will be a significant factor is the government-mandated program in both Brazil and Argentina requiring that diesel fuel include a soybean oil content.
Summary:
While biofuels are a relatively new use of corn and soybeans, the growth in supply of both corn and soybeans from increased acreage and higher yields have allowed the crops to meet the added demand of biofuels. Corn should not see any significant tightening of supplies due to ethanol refining, unless there is a significant crop shortfall due to weather. Soybean production in both North and South America has met the demand for biodiesel, and should continue to do so in the coming years.
Posted by Stu Ellis on 01/07 at 01:10 AM | Permalink