WEST LAFAYETTE, Ind. — Low corn prices on the heels of
near-record yields this year could mean increased demand from ethanol producers,
export markets and biofuels consumers, Purdue Extension agricultural economist
Chris Hurt said.
A proposal by the U.S. Environmental Protection Agency to
reduce the amount of biofuels that oil companies must blend into gasoline and
diesel from 18.15 billion gallons to 15.21 billion gallons in 2014 — including
an implied reduction of corn ethanol from 14.4 billion gallons to near 13
billion gallons — initially appeared negative for corn markets.
But according to Hurt, even with the proposed reduction in
the Renewable Fuel Standard, national corn use for ethanol might not drop below
the 4.9 billion bushels that the U.S. Department of Agriculture has
“Now that three months of the marketing year have passed,
there is growing evidence that corn usage for ethanol can reach, and even
exceed, 4.9 billion bushels,” he said. “We have to remember that RFS volumes are
a minimum and production of renewable fuels can always be higher.”
The primary demand for corn ethanol is the 10 percent blend
with all gasoline sold in the U.S. The amount of ethanol needed to meet this
demand depends on how much gasoline is consumed for the rest of this year and
Hurt said he expected 2013 gasoline consumption to be near
133 billion gallons and slightly less for 2014.
“This means ethanol consumption will need to be about 13.2
to 13.3 billion gallons — a number that is above the EPA proposal and would
require almost 4.9 billion bushels of corn,” he said.
Another area of potential corn ethanol demand is exports.
Low corn prices will eventually mean lower ethanol prices, which makes U.S.
ethanol more appealing to foreign buyers. It also means the U.S. can produce its
own ethanol cheaper than importing it, thus creating domestic demand.
Hurt said there are clear indications that exports will
continue to grow, while imports have all but stopped.
“While it is still too early to make accurate predictions of
trade volumes, net exports in the range of 400 million to 550 million gallons of
ethanol might be likely,” he said. “If so, that could add 150 million to 200
million additional bushels of corn use for ethanol.
“These two markets would mean that corn usage could reach
4.95 to 5 billion bushels of corn usage from the 2013 crop — higher than USDA’s
current estimate,” he said.
Consumption of E85 is another area of potential growth for
the corn ethanol sector. But a gallon of E85 — a blend of 85 percent ethanol and
15 percent gasoline — produces less mileage than higher gasoline blends. That
means gasoline prices would have to be much higher or E85 prices much lower to
spark demand growth.
“While ethanol and E85 are not sufficiently low-priced right
now to make greater E85 use economic, low corn prices would be one of the
conditions that could provide lower E85 prices later in the marketing year,”
Hurt said. “For example, February ethanol futures are 60 cents lower than
current cash prices.”
Greater corn use for ethanol could help growers who are
hoping for some price recovery for the 2013 crop. According to Hurt, corn use
for ethanol could exceed the USDA projections by about 100 million
While that alone wouldn’t be enough to bring corn prices
back to $5 per bushel, corn exports also are currently pacing above USDA
projections, which could lead to some price increases.
“These two support a growing usage base that is being
stimulated by low corn prices and should help corn prices to establish a bottom
before beginning a modest rally,” Hurt said.
The extent to which corn prices recover could also depend on
likely upward revisions to the final 2013 corn crop size by USDA on Jan. 10.