Export markets for ‘liquid corn’

Global trade for U.S. ethanol has been trending up in the past decade, becoming an important part of the industry’s growth strategy. This article appears in the February issue of EPM.
By Holly Jessen | January 21, 2016

Looking at the numbers, it doesn’t take long to conclude that the U.S. is developing into an ethanol export powerhouse. “As recently as 2006, the U.S. barely registered as an exporter at all, and between 2006 and 2014, our exports have risen by $2 billion,” says Michael Dwyer, chief economist for the U.S. Grains Council. “There has been a dramatic change in the competitiveness of American ethanol.”

By volume, U.S. market share of world exports was only a few percentage points in 2006.  In 2015, the U.S. share of world exports is expected to remain at nearly 50 percent, about the same level as in 2014, and twice the amount exported by Brazil.

The fact is, the U.S. is picking up market share from Brazilian ethanol producers, Dwyer says. In 2014, the U.S. exported $2.1 billion in ethanol, overtaking Brazil as the world’s largest ethanol exporter. Brazil’s ethanol industry faces multiple factors that make it difficult to complete, including a recession and high interest rates. In comparison, the U.S. ethanol industry is doing very well. “The U.S. ethanol industry, while we have had better times, by and large, has never been healthier than it is today,” he says. One factor in growing demand is the difference in price of U.S. and Brazilian ethanol, from the export position. “We’ve got them beat by about 30 cents a gallon,” he says.

And, USGC is optimistic that U.S. ethanol exports will continue to grow long term. That’s based on projections through 2024 from the USDA on U.S. corn prices and Organization for Economic Co-operation and Development on world sugar prices. The price of corn is expected to hold fairly steady below $4 a bushel while sugar prices are forecast to stay just above corn prices. “We think the advantage we have today is going to carry through pretty much the next decade,” Dwyer says.
There has been a significant shift, confirms Geoff Cooper, senior vice president of the Renewable Fuels Association. Five years ago the ethanol industry assumed the U.S. EPA would enforce the renewable fuel standard (RFS), set by Congress in 2007. But, unfortunately, that didn’t happen. “The ethanol export market emerged very rapidly, at a very crucial time for the industry and really provided a crucial outlet for some of the spare capacity and production that we have in the United States,” he says. “It has helped support robust demand, healthy pricing and healthy economics for the ethanol sector.”

By the time all the data is in for 2015, U.S. ethanol exports are expected to hit about 850 million gallons, second only to the record 1.193 billion gallons exported in 2011. It’s also an increase from the 835.6 million gallons exported in 2014, Cooper says. That’s particularly impressive, considering the changes in oil and ethanol prices.

“Having this conversation this time last year, there was a lot of concern within our industry about what lower oil prices might mean for ethanol export demand,” Cooper says. “The thought was that if ethanol was trading above gasoline blendstock we were going to see some erosion in ethanol market share. And here we are, a year later, expecting to see an increase in exports even though ethanol has been priced above gasoline for the last year.”

Ethanol doesn’t only have value when it’s an inexpensive source of energy. “It’s all about octane,” Cooper says. “What I have learned in the past year is that export markets are increasingly valuing U.S. ethanol for its octane content, just as domestic refiners here in the U.S. have for several years. I think what we have seen this year is a clear indication that ethanol’s octane value is being recognized globally as well.”

Hot Markets
Substantial opportunities for ethanol exports exist globally. In fact, according to figures from the RFA, if the top 15 gasoline markets outside the U.S. all used just 5 percent ethanol blends, that would add up to more than 6.5 billion gallons of ethanol a year.

In an effort to tap into global ethanol export markets, two years ago USGC joined with RFA, Growth Energy and the USDA Foreign Agriculture Service to promote ethanol exports in other countries. Recent examples include visits to the U.S. by ethanol buyers from Mexico, the Philippines and Peru in October, August and June. USGC has long promoted distillers grains exports, and continues to do so, but the addition of ethanol exports acknowledges both products come from the same source. “When we are exporting ethanol think of it as liquid corn, in terms of what it means for corn farmers,” Dwyer says.

Specifically, the trade team from Peru visited the International Fuel Ethanol Workshop & Expo, followed by a tour of ethanol plants and trading companies in Iowa, Illinois and Texas. In December, USGC reported a U.S. exporter had confirmed the sale of 10 million gallons of ethanol, valued at more than $15 million, on its way to Peru. In 2010, Peru began requiring a 7.8 percent ethanol blend in gasoline and the country’s own ethanol industry is still relatively new.

The promotion program is at work in multiple countries, with a focus on Asian countries, such as the Philippines, Japan, Korea, India and China, as the best market prospects, Dwyer says. Ethanol usage in those counties is low but fuel consumption growth is the fastest in the world. In addition, air quality problems are widespread and worsening, especially in areas of Asia that are developing.

The ethanol export promotion efforts have been successful, Cooper says, in terms of getting conversations going about U.S. ethanol. “It takes time to build these markets and forge relationships,” he says. “It’s not an easy thing to do but I think we have seen some success in breaking into these new markets.”

Besides RFA’s involvement in promotion efforts with USGC, Growth Energy and USDA-FAS, the association also joined forces with the U.S. Commerce Department to set up business-to-business sales opportunities, such as trade trips to Brazil and the Philippines, which have been very successful. Cooper also mentioned Asian countries, specifically Thailand, Vietnam and Singapore, plus South American Countries such as Columbia and Peru, as hot, new markets. These are places where the U.S. is currently sending small amounts of ethanol but that have lot of potential for growth.

For example, China emerged in 2015 as a player in the ethanol export story.  The country was the top customer for U.S. ethanol in October, according to the latest available data in late December. In that month alone, 32.6 million gallons of ethanol were exported to China, which is almost double the total amount of ethanol shipped to the country in the past two years. “That’s a new development in 2015 that I think is a tremendous opportunity,” Cooper says. “China is the No. 2 gasoline market in the world, behind the United States, so there’s lots of demand potential there.” Between 2014 and 2011, China’s ethanol industry produced between 555 million gallons and 696 million gallons of ethanol.

Another opportunity for export growth is to Mexico and other markets still using MTBE despite known risks to air and water quality. “We think there’s a real opportunity to get in some of those markets,” he says. While more education is needed on the environmental and health benefits of ethanol, good progress has been made in securing ethanol’s future as Mexico’s oxygenate of choice.

Cooper also stressed the importance of Canada. “It’s our oldest and most consistent market,” Cooper says. Through October, about one-third of ethanol exports ended up in Canada. In 2014, a total of 335.9 million gallons of U.S. ethanol was exported to the nation’s neighbor to the north, which is 4 percent more than the previous year. The country produced 510 million gallons of the fuel that year.

Brazil was the No. 2 market for U.S. ethanol in 2014 and is on track to be so this year as well. In 2014, Brazil produced 6.19 billion gallons of ethanol and imported 112.2 million gallons of U.S. ethanol, a 147 percent increase from the previous year. In the same year, the U.S. produced 14.3 billion gallons of ethanol domestically and imported 60.8 million gallons of Brazilian ethanol. It’s also noteworthy that that’s 83 percent reduction from Brazilian ethanol imports the previous year. “We’ve been trading ethanol with Brazil for much of the past five years but it’s certainly more up and down and hit or miss in the Brazil market,” he says. 

Then there’s Europe. U.S. ethanol exports to Europe are the reason the industry crossed the 1 billion gallon mark in 2011. But a tariff on U.S. ethanol caused exports to Europe to erode dramatically, although small amounts are still making it there. “Europe is a still a major frustration for us,” Cooper says. “They have a need for more ethanol they can produce. … We are just asking for the chance to get in there to compete with the Brazilian ethanol, for access to that marketplace.” 

Author: Holly Jessen
Managing Editor, Ethanol Producer Magazine