March 1, 2007

ASA: US soybean production to 2016 impacts ethanol production

The continuing expansion of corn-based ethanol production will affect virtually every aspect of US crop production, from domestic demand and exports to prices and the allocation of acreage among crops, says Economic Research Service in its latest long-term projection.

Each year, the USDA makes 10-year economic projections for the food and agriculture sector. The large increases in corn-based ethanol will affect the production, use and prices of all farm commodities. Expansion of biodiesel use in the EU will raise demand for vegetable oils in global markets.  Additionally, steady US and international economic growth will support increased consumption, trade and prices of all the major crops.

Domestic use of soybeans in the US is forecast to rise slowly, but US soybean exports will initially fall and then grow again but very slowly. Soybean processing in the US will be driven by increasing demand for soybean meal for livestock feed, although increasing soybean oil demand for biodiesel will also support domestic processing. US soybean exports are forecast to fall below 24.5 million tonnes (this year, soybean exports are forecast at 31 million tonnes) because acreage will shift to corn for ethanol production and competition from Brazil will strengthen. Consequently, the US market share of global soybean trade is forecast to decline to below 25 percent.

Soybean plantings are forecast to decline over the coming ten years to less than 69 million acres (72 million acres planted last year) as farmers obtain better returns from corn and shift land out of soybeans. Corn, wheat, and soybeans account for about 88 percent of acreage for the eight major field crops grown in the US In general, a shift to corn and away from soybeans and other crops is expected. Corn acreage is forecast to rise sharply, reaching 90 million acres by 2010 (82 million acres last year) as rapid expansion in ethanol production increases corn demand, prices, and producer returns.

As the ethanol industry will absorb a larger share of the corn crop, higher prices will affect both domestic uses and exports and increase competition between and among domestic industries and foreign buyers. At present, US feed use of corn is typically 50-60 percent of total corn use and the US supplies around 60-70 percent of world corn trade. It is forecast that corn used for animal feed in the US will decline to around 40-50 percent of total use and US share of world corn trade will fall to 55-60 percent. Whether used in a wet or dried form, distillers grains will replace some corn and soybean meal in some feeds and the feed use of wheat is also forecast to increase significantly.