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Thursday, July 22, 2010

With Higher Ethanol Blends, What Happens To Corn Acreage And Exports?



 

Corn growers, the ethanol industry, and motoring public, and the rest of America are awaiting EPA’s decision on whether to allow ethanol to expand beyond the 10% blending limit, and if so, how much. The proposal being studied by EPA would have the blending limit increased to 15%, but other options being studied are 12% and retention at 10%. While the ethanol industry would have to increase its capacity, there are some other considerations that come first, including the impact of the expansion on acreage, on production, and how it would impact corn exports.

While ethanol continues to consume more and more corn every year, it still is second to livestock feed, and about 3 times the amount of corn exports. If more corn goes to the ethanol refinery, less will be exported, but more will have to be produced and that means more acreage. Those statistics are included in the report of Kansas State economist Dan O’Brien who also looked at the blending alternatives impact on distillers’ grains.

The economist makes several assumptions that are key to his calculations. Among those is that the carryout will not be allowed to decline under 1 billion bushels, and that for each 1% increase in the blend rate, 1.3 billion gallons of ethanol will need to be produced, consuming 464 million bushels of corn. It also assumes that the current maximum capacity for ethanol refiners would be 13.524 billion gallons in 2010 and 14.602 billion gallons in 2012. Among the other observations made by O’Brien is that increases in ethanol production would result in more DDGS production, and that DDGS needs would be met before any corn was exported.

Corn exported if the 10% blend was retained would decline from the 2.25 billion expected in 2012-13 to a low of 1.882 billion and then climb to 2.126 billion bushels. The decline results from the growing federal mandate to reach 15 billion gallons of ethanol production by 2015. If the EPA allows a 12% blend, US corn exports would reach a high of 2.0 billion bushels in 2012-13, decline to a 1.1 billion bushel low in 2015, and climb to 1.3 billion by the end of the decade. Under the 15% blend scenario, corn exports would have a 2.0 billion bushel high water mark in 2012, drop below 400 million in 2015 and return to the area of 600 million by the end of the decade.

To meet the higher levels of ethanol being considered by the EPA, planted acreage would have to be adjusted upward. The 10% blend will gradually require more corn acreage from the 88 million now up to 92 million by the middle part of the Decade. And here again a 12% blend will push acreage up to the mid-90 range of 95 million to 97 million in the middle part of the decade before declining to the 95 million acre mark in 2018 through 2020. If the choice expands to 15% then planted acreage would have to expand rapidly to 102 million acres by 2013, and remain in the 101 to 102 range for the balance of the decade. O’Brien says under the 15% ethanol consideration US corn growers would have to raise an additional 1.7 billion bushels per year.

Such large reductions in US exports would have an impact global livestock feeding. However, given the volatility of energy prices, there is no assurance of how much corn would remain out of the export market in favor of ethanol production. Large corn demands for ethanol would also cause farmers to decide if other crop acreage will be reduced, such as oilseeds and wheat.
Summary:
If the EPA opts to move the maximum ethanol blend from 10% to either 12% or 15% then substantial increases in planted and harvested acreage would have to occur to avoid termination of exports and other programs. If there is insufficient acreage to supply both export demand and ethanol, then market forces would make the decision.

Posted by Stu Ellis on 07/22 at 01:04 AM | Permalink

Comments

Day Dreaming of USDA and EPA working together: The use of USDA’s 2010-2019 acreage projections without consideration for acreage adjustments (switching between crops) do to market forces (change in profit potential between crops do to a change in price relationships and cost of production) limits the usefulness of O’Brien’s report. USDA’s projections cap planted corn acres at 90 million acres. (We planted 93.5 million acres in 2007.) O’Brien projects 102.9 million acres of corn might be needed for a 15% blend and other domestic and export needs to be met. Those increased corn acres would result in a decline in planted acres of other crops. Is it time to move mandated ethanol blends away from an energy policy to agricultural price support program? A 15% mandated blend appears to have the same impact as a 15% mandated “set a side” as market forces adjust acres to meet the energy mandate. Wouldn’t it be better to have some mechanism available to adjust the mandated fuel levels up or down based upon the grain pricing pressures? (The experience of 2007 seems to have lost its ability to imprint a lesson. Few realized how bad that was and fewer envisioned how bad it could of have been. (Isn’t that correct, Mr. Jackson? Some of us felt your pain.)) For maximum affect, mandate all new US autos, import and domestic, become E 40 compatible. Ethanol imports would need to be controlled so their level of use could support the process. In the near term, it does not appear likely that any product or combination of products will eliminated the need to keep the foreign oil production and shipping lanes open. Until our men and women of our Armed Forces are removed from “harms way”, our main energy policy needs to be viewed as imported oil. ”Stamping” a fixed level of ethanol production into law seems to limit the potential benefit and could be harmful to the US and farm economy. Jib aka Gibberish

Posted by: Jib at July 22, 2010 11:11AM

Tell the Boo Hoo er's to look at the last 3 years of SURPLUS CORN that has been sitting on the ground or storage after EVERY single avenue was filled, INCLUDING EXPORTING !!!! HUGE AMOUNTS !!!!!

Posted by: RG at July 23, 2010 3:03PM

Don't forget that we should be getting cellulosic ethanol to provide some of this supply. The technology is here; we just need the funds to build the system from field to refineries. We don't have to rely on the "low haninging fruit," i.e., corn or other grains, if we really don't want to.

Posted by: Joanne M Ivancic at July 27, 2010 10:10AM

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