On the one hand, the nation’s renewable-fuels policy demands a higher percentage of the nation’s fuel needs be accommodated by grain-based ethanol this year. On the other hand, fuel usage is down, and to the surprise of many, the corn carryover was higher than expected.
According to the January “World Agricultural Supply and Demand Estimate,” ending corn stocks for the U.S. are projected to be 316 million bu. more than previously predicted, based on increased production estimates (+81 million bu. compared to previous projections) and lower estimated use. The projected season-average farm price for corn is lowered 10¢ on each end of the range to $3.55-$4.25/bu.
That’s obviously encouraging news if you’re in the cattle business. Then, there’s the other hand.
Steve Amosson, AgriLife Extension economist, points out the energy bill signed into law in December 2007 requires 36 billion gals. of ethanol to be available for use by 2022; 21 billion gals. is supposed to come from feed stocks other than corn. The problem, says Amosson, is that cellulosic ethanol production is not even expected to get off the ground until 2015 or after, and then it takes time to ramp up the industry.
“The renewable fuel standards will not hold up – it can’t,” Amosson says.
That’s true despite the fact that ethanol production has trended south along with the profit opportunities to be had there.
Amosson explains recent analysis shows that ethanol plants are losing money given the current prices of ethanol and distillers grains byproducts, after taking into consideration the cost of the primary inputs of natural gas and corn. However, he adds that ethanol prices should rise based on the expectation that oil prices are expected to increase. As well, he notes, “We may be falling below producing enough ethanol to meet the amount necessary to meet the renewable fuel standards.”
Even so, there’s plenty of reason to believe the price of distillers grains should decline.
“I thought distillers grain prices would go down, but last year Europe had a disaster in their wheat,” Amosson says. “While they wouldn’t import any of our genetically modified corn, they still used our distillers grains for feed and that is why we didn’t see the decrease.”