USDA report underscores huge impact of ethanol production on US corn supply

By Aerin Curtis

- Last updated on GMT

USDA report underscores huge impact of ethanol production on US corn supply

Related tags Corn Ethanol fuel

The increase in ethanol production since 2000 has resulted in the ethanol industry moving from being a market for US corn to being the primary user of the grain by 2010, according to a USDA report. 

A recent publication from the US Department of Agriculture (USDA), US Ethanol: an Examination of Policy, Production, Use, Distribution, and Market Interactions​, looks at the complex interaction of ethanol production with US agricultural markets and government policies, with particular emphasis on the pivotal role that ethanol plays in the crop and feed markets.

In 2000-01 ethanol use of corn was less than 1bn bushels, by 2013-14 it was more than 5bn bushels, found the authors. “Corn feed and residual was the largest use of corn until 2010 when it was surpassed by corn used for ethanol, reflecting rising ethanol demand,”​ said the USDA team.

Corn prices

Since 2000, the ethanol industry has gone from producing about 1.6bn gallons to making more than 14bn gallons in 2014, said USDA officials. That growth is credited with boosting the price for corn and other agricultural commodities.

To support the increased production, the industry has needed large quantities of corn, according to the US agency’s report.

“In 2013, US [corn] producers planted 95.4m acres (38.6m hectares), down 1.9m acres from 2012, when acreage set a post-World War II high of 97.3m acres,”​ reported the authors. “From 2000 through 2005, acreage planted averaged around 79m acres per year and then jumped dramatically to 93.5m in 2007.”

From 2000 to 2013 the average planting has been about 91.2m acres a year, said the USDA team.

However, corn prices have also increased since 2006 partially because of the ethanol demand, they said.

Farm prices averaged around $2.10 a bushel from 2000-2005 and moved to about $4.70 for the period from 2006-2013, with a drop in price only happening during record yields.

“In addition, adverse growing conditions in 2010-2012 led to below-trend yields and reduced production, adding to price pressure, especially in 2012 when severe drought and record high temperatures were widespread,”​ they added.

Strong demand for corn was also accompanied by a reduction in other feed grains and a reduction in hay availability that started in 2005, said the USDA officials.

“The decrease in other feed grains and hay was partly a result of fewer acres planted to these crops as corn and soybean plantings increased. The corn feed decline also reflects some substitution by other feedstuffs—notably ethanol byproducts, offsetting some but not all of the decline, as well as changes in animal inventories from drought and other factors,” ​said the USDA authors.

Many animal producers have moved from corn to distillers’ grain (DDGS) – a co-product of ethanol production – as corn has gone to the ethanol market, continued the report. “Distillers’ grains have proven to be popular with dairy producers and beef cattle feeders, with less use for hogs and poultry,”​ added the USDA officials.

Poultry sector call to curb corn-derived ethanol use

The US National Chicken Council (NCC) has long being decrying the impact of corn-derived ethanol market on its members’ profitability.

July saw the NCC call for a freeze on the amount of conventional ethanol made from corn set by the renewable fuel standard (RFS).

“Since the RFS was enacted in 2007, chicken producers have faced more than $50 billion higher in feed costs,”​ said NCC spokesperson, Tom Super. “With both increased required volume obligations in 2015 and 2016, as well as increased ethanol exports, the US chicken industry is again only one supply shock, flood or drought, away from high volatile corn prices as in 2009 and 2012.”

Additionally, while chicken producers have to adjust production and limit flocks due to corn prices, the RFS protects ethanol producers from having to make the same type of adjustments, he said.

The organization isn’t against the use of corn for the production of ethanol, he told FeedNavigator. But it does want to see a level playing field for corn as ethanol producers are being favored through governmental mandates, which hurts other end users of the grain.

“Since 2007, more than a dozen poultry companies have filed for bankruptcy, been sold or simply closed their doors altogether, due in large part to high feed costs brought on by the RFS,”​ said Super.

RFS volume targets due

Energy titles in the US Farm Bills have established several programs to improve bioenergy and bio-product production and use, said USDA officials.

However, recent legislation regarding the production of biofuels has sought to broaden the ingredients used in the manufacturing, they said.

In May 2015, the US Environmental Protection Agency (EPA) proposed scaling back the volume targets for renewable fuels under the RFS. The final rule is expected to be finalized by the end of this month.

“Capping the renewable fuel standard for corn ethanol in 2015, while increasing the mandates for advanced biofuels, reflects the intention of lawmakers to diversify the feedstocks used to produce renewable fuels,”​ USDA officials said. “In the early years, the total renewable fuel requirement was designed to be satisfied mostly by corn-ethanol, but in 2015, advanced biofuels begin to play a more important role.”  

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