Corn Supply Prospects for US Ethanol Production

By Daniel O'Brien | November 11, 2009
The October World Agricultural Supply and Demand Estimates report projected that the 2009 U.S. corn crop would be 13.02 billion bushels. Combined with 1.67 billion bushels of beginning stocks and a small amount of imports, total U.S. corn supplies for the 2009-'10 marketing year were projected to be 14.70 billion bushels. If realized, this will be the largest amount of U.S. corn supplies on record.

Since the 1973-'74 marketing year, corn use for livestock feed has been the largest source of U.S. corn demand and use. Domestic feed and residual use is projected to average 43.7 percent of total U.S. corn use through the 2009-'10 marketing year. Prospects for livestock feed use in the U.S. have moderated recently as livestock and poultry producers are struggling with weak product demand and large supplies.

Exports have also been a major source of demand over time for U.S. corn, averaging 17 percent of total U.S. corn use over the past three marketing years. Because of the variable and uncertain nature of corn exports, and the prevailing view that corn exports affect corn supply-demand balances annually as a "wild card" at the margin, exports have been an important causal source of price variability in the U.S. corn market since at least 1973. The United States plays a dominant role in corn export markets, providing approximately 65 percent of total world corn exports during the 2009-'10 marketing year. Although U.S. corn export prospects have improved in 2009-'10, there is likely limited potential for further dramatic increases in corn exports in the near term.

During the past three marketing years, the amount of corn used for ethanol production has increased from 24 percent to 32 percent. Non-ethanol demand for corn use has also steadily increased. Total use of U.S. corn over time, however, has been relatively more stable than ending stocks. Also, ending stocks-to-use ratios are typically used as a measure of the relative scarcity of corn supplies in comparison to use, and generally have been inversely related to corn market price levels over time. Overall, there seems to be adequate supplies of corn available in the U.S. to meet ethanol demand for the 2009-'10 marketing year.

Longer-Term Corn Supply Prospects
The Economic Research Service has developed a set of baseline supply/demand projections for U.S. feedgrains for 2009-'10. Projections call for ethanol-based corn use to steadily increase from 4.2 billion bushels to 5.05 billion bushels from the 2009-'10 through 2018-'19 corn marketing years. This analysis generally omits annual weather and associated production variation, assuming steady increases in U.S. corn production and various categories of corn use.

By updating the original analysis with information from the October 2009 WASDE report, the impact of key factors on the tightness of U.S. corn supplies over time can be determined. At 100 percent of the U.S. corn export projection in the study, U.S. corn stocks-to-use will remain steady to slightly increasing through the 2018-'19 corn marketing year. However, if U.S. corn exports increase by a greater rate over time than assumed in the ERS study, U.S. corn ending stocks-to-use will be seriously affected. Increases in these export projections between 5 percent and 10 percent cause projected U.S. corn stocks-to-use to fall as low as 4 percent from current levels of 12.8 percent. High U.S. corn prices would likely result in response to such tight domestic stocks-to-use scenarios.

A number of important assumptions have been made in deriving this analysis. However, the critical issue is that, in the long run, the availability of corn for ethanol production is directly dependent on developments in other segments of the corn supply/demand complex. In turn, these other sources of corn use are dependent on the broader set of domestic and foreign economic influences affecting the agricultural markets in general.

Daniel O'Brien is an extension agricultural economist at Kansas State University. Reach him at dobrien@k-state.edu or (785) 462-6281.