June 15, 2007

US agriculture to adjust on corn-based ethanol boom

As corn accounts for the bulk of ethanol production in the United States, the lookout for other sources continues. Switch wood and corn stalks are being considered for cellulosic-based ethanol production, however, much research is needed to make it commercially viable and expand beyond the mandated 250-million-gallon minimum for 2013 under the Energy Policy Act.

While ethanol's share in the fuel market is still minimal (3.5 percent of motor vehicle supplies by volume), its impact on the corn industry are making big waves  as 14 percent of the 2005/06 crop went to ethanol consumption. As carryover stocks of corn represented 17.5 percent of ethanol use at the end of 2005/06, the grain's extended use to manufacture the biofuel will leave the ending-stocks-to-use ratio at 7.5 percent, according to the US Department of Agriculture's (USDA) April 2007 report.

Latest USDA report shows that about a third of the total US corn production will be used for ethanol by 2009/2010. As corn carryover stocks remain steady within ten years to secure a guaranteed supply of corn-based ethanol, its production by 2017 will only represent 7.5 percent of annual gasoline use in the United States.

As it is apparent that ethanol affects the entire US agriculture sector, the industry is advised to make further adjustments as the surging demand for corn will trigger fluctuating movements for prices, harvests and other factors. USDA's 2007 long-term projections show that corn prices will peg at US$3.75 per bushel by 2009/2010 and fall by US$3.30 in 2016/17 as the expansion gradually slows down. However, these prices are still at its record high as it will exceed the previous high average over any 5-year period by more than 50 cents a bushel.

As corn comprises fifty to sixty percent of livestock feed, the grain's skyrocketing prices is certain to pull down corn consumption by 40 to 50 percent in 2011 as poultry and livestock farmers are expected to shift to distillers' grain in feed rations. On global corn trade, the US market share is seen to slide by 2 billion bushels or 55 to 60 percent in the next decade as most of it will be consumed domestically of course by ethanol.

Higher prices will still put corn as US' biggest crop which is seen to take 90 million hectares in 2011 and will remain at that level for at least four years as attempts to balance its future market needs through price levels are being undertaken.

For more of the USDA report, please click here.