USDA: Booming US Ethanol Production Could Require Additional 1 Billion Bushels of Corn in 2007-08
11 January 2007
Feeding the boom in ethanol production may require as much as an additional 1 billion bushels of the 2007 US corn crop, said Dr. Keith Collins, Chief Economist for the US Department of Agriculture, in testimony this week before the US Senate Committee on Agriculture, Nutrition and Forestry.
About 2.15 billion bushels of the 2006 corn crop are being used for ethanol production; an additional 1 billion bushels thus would represent an increase of 46.5%. At a current yield trend of 152 bushels of corn per acre, use of an extra 1 billion bushels would require an additional 6.5 million acres of corn, if other uses remain unchanged at current levels, according to Dr. Collins.
In 2000, about 1.6 billion gallons of ethanol were produced in the United States, with ethanol utilizing about 6 percent of the 2000 corn harvest. In 2006, an estimated 5 billion gallons of ethanol were produced, and ethanol accounted for 20 percent of the 2006 corn harvest.
Renewable Fuels Association data indicate there are now 110 ethanol plants with total capacity of 5.4 billion gallons and another 73 ethanol plants under construction and another 8 facilities expanding. When construction and expansion are completed, ethanol capacity in the United States will be 11.4 billion gallons per year, which is likely to occur during 2008-09.
To provide an indication of how rapidly this expansion is occurring, in August 2006, just 6 months ago, the capacity of known plants and those under construction and expansion was 7.4 billion gallons, some 4 billion less than current estimates.
Dr. Collins attributed the skyrocketing production to a number of factors, including:
- High oil prices;
- The 51 cent per gallon tax credit provided to blenders;
- Low corn prices until this fall;
- The ethanol import duty of 54 cents per gallon;
- Improving production economics;
- The Renewable Fuels Standard (RFS); and
- The elimination of ethanol’s main oxygenate competitor, methyl tertiary butyl ether (MTBE).
With more corn moving to more ethanol plants, rising corn prices are signaling a market need for more corn acreage and production.
For 2006/07, USDA forecasts the total use of US corn will be equivalent to the production on 85.6 million acres. Yet, only 78.6 million acres were planted in 2006.
Corn supplies are expected to meet demand because of large carrying stocks of corn, which are expected to be reduced by more than half. During August 2006, prior to the start of the 2006/07 crop year, the average price received by farmers for corn was $2.09 per bushel. By December 2006, after a corn harvest that was slightly below summer expectations and a growing awareness that ethanol production capacity is coming on line at a very rapid rate, US farm-level corn prices averaged $3.01 per bushel, an increase of 44 percent from the August level.
With corn stock levels already being reduced this year, another large drawdown in stocks for the 2007-crop marketing year will not be available to meet the rising demand, thus the higher corn prices that are signaling more planting. Beyond 2007, to achieve steady increases in ethanol production from corn will require ever more acreage or higher corn yields per acre, or both.
The rising prices will encourage planting corn at the expense of soy beans and other crops, with concomitant increases in the prices of the crops facing decreased planting, according to Dr. Collins.
Related issues resulting from the increase in corn acreage include the possible environmental consequences of more nitrogen fertilizer use, and the potential that more marginal lands may come into production having greater vulnerability to erosion, nutrient runoff, and leaching.
Dr. Collins pointed to research as potentially providing productivity gains that could solve some of the acreage challenge.
In fact, virtually all the growth in US agricultural output over the last 50 years is explained by growth in productivity. Growth in inputs used, such as land, has been quite modest.
Since 1948, corn yields have increased four-fold, from 40 bushels per acre to 160 bushels in 2004 due to fertilizers, better management, technology, and improved crop genetics. It appears corn yields in the past couple of years have moved above the long-term trend and may continue to do so in coming years as well, helping to meet biofuel demand and reduce pressure on corn prices and acreage.
Acreage planted to genetically engineered corn varieties has increased from 25 percent of corn acres in 2000 to 61 percent this year. Over the past few years, new generation root worm resistant corn has been introduced and is showing strong yield increases in many areas. Over the next couple of years, drought-tolerant varieties of corn are expected to become commercially available.
As we look out over the next decade, USDA trend projections suggest US corn yields per acre rising to 168 bushels by 2015, however, at least one seed company projects yields that are more than 20 bushels per acre above that level.
Each 5 bushel increase in yield above the current trend level would be the equivalent of adding around 2.5 million acres to corn plantings, enough to produce an additional one billion gallons of ethanol each year.
Dr. Collins, however, expects demand growth for ethanol to slow in several years as a theoretical E10 market—roughly 14 billion gallons of ethanol—reaches its limit. E10 is the practical limit for universal blending of ethanol. Pushing to higher blends would require regulatory approval and changes in engine warranty coverages.
If ethanol is to continue its expansion beyond 10 percent of US gasoline use, higher blend levels and E85 will have to become far more pervasive than they are today, and, given corn production constraints, cellulosic ethanol will have to become economically feasible.
Despite ethanol’s small share of gasoline demand, it already claims a large share of corn production. Ethanol could account for over 25 percent of the 2007 crop of corn, compared with 20 percent for the 2006 crop.
Clearly, developing biofuels from alternative feedstocks will be necessary for long-term expansion of biofuels. Cellulosic ethanol appears to be the best biofuel alternative for reducing crude oil imports, but making it commercially feasible on a wide scale is a formidable challenge.
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