Prospects for Ethanol Feedstocks in 2010

By Daniel O'Brien | May 21, 2010
urrent prospects for U.S. corn production in 2010 are for normal yields to be reached on increased planted acreage. Under average growing conditions, corn supplies are likely to be fully adequate to meet U.S. ethanol industry demand. It is likely that U.S. corn ending stocks for the 2010-'11 marketing year may increase compared to last year, and cash prices will see a normal seasonal low during harvest.

2010-'11 Marketing Year Prospects
In USDA's March 31 Prospective Plantings report, U.S. corn acreage was projected to be 88.798 million acres in 2010, up 3 percent over both 2008 and 2009. Considering the average difference between planted and harvested acres in the past three years of 8 percent, U.S. corn harvested acreage in 2010 can be projected to be 81.694 million acres. In February, USDA projected the 2010 average corn yields will be 160.9 bushels per acre, 0.9 bushels below the trendline for 1990-2009. The USDA reduced projected yield based on fertilizer price and availability issues, and the impact on corn yields on acres that would have been planted to winter wheat last fall.

Those projections multiply out to a 13.144 billion bushel (bb) 2010 corn crop. If the trendline yield of 161.8 bushels per acre were used, it would increase corn production by 74 million bushels (mb) to 13.218 bb. Using current 2009-'10 marketing year estimates of ending stocks (approximately 1.9 bb), and an estimate of 10 mb in U.S. corn imports, total supplies of U.S. corn for the 2010-'11 marketing year would be a record high of 15.054 bb.

Corn Use Prospects
The USDA projected 2010-'11 corn usage for ethanol at 4.5 bb (up 200 mb from the 2009-'10 marketing year). It is reasonable to assume that non-ethanol food, seed and industrial use of corn will increase by 25 mb to 1.290 bb. Exports are conservatively projected to be 1.9 bb, unchanged from the 2009-'10 marketing. This estimate is 200 mb lower than the export projection in the USDA's February Agricultural Outlook, mainly due to continued strengthening of the U.S. dollar. Projected feed and residual use is 5.450 bb, unchanged from 2009-'10. Total use of U.S. corn for the 2010-'11 marketing year would be 13.140 bb.

Ethanol usage of 4.5 bb would constitute 34 percent of total U.S. corn usage, an increase from 30 percent in 2008-'09 and from 33 percent in 2009-'10.

Ending Stocks and Price Estimates
Subtracting total use from projected total supplies leaves projected U.S. corn ending stocks of 1.914 bb for the 2010-'11 marketing year. This would be a small increase of 15 million bushels over the April 9 USDA World Agricultural Supply-Demand Estimates for U.S. 2009-'10 ending stocks of 1.899 bb—a projected ending stocks-to-use ratio of 14.6 percent for 2010-'11, up from 13.9 percent in 2009-‘10, and the highest ratio since the 2005-'06 ratio of 17 percent.

With these marginal increases, it is likely that that U.S. average corn prices for 2010-'11 will be only marginally lower than prices in the current marketing year. With 2009-'10 projected prices averaging $3.50 to $3.60 per bushel, 2010-'11 marketing year U.S. average corn prices will likely be only 5 to 10 cents per bushel lower than the previous year, in the range of $3.40 to $3.55 per bushel.

Under these market conditions, U.S. corn prices would likely follow a typical seasonal price pattern, with cash prices declining into fall with a price low occurring in October-November. Then, grain prices would likely climb steadily beginning in December through May-June, 2011. After moving sideways during July, U.S. cash corn prices would either decline into fall harvest or move higher into the fall, depending on growing conditions during the summer months of 2010.

Contingency Plans
If crop production problems occur this summer, it would take a decrease in U.S. average yields of 12.25 bushels to reduce U.S. corn production by 1 bb. With limited or no change in corn use, a 1 bb decrease in 2010 corn supplies would drop ending stocks to 899 mb for a 6.8 percent ending stocks-to-use ratio, the smallest since the 1995-'96 marketing year. Average cash prices for 2010-'11 would strengthen considerably, likely moving above $4.00 per bushel at a minimum.

In reality, this short-crop scenario would lead to rationing of supplies, with U.S. corn prices likely to move higher during the summer and fall months of 2010, and remain at high levels through the winter and early spring months, at least until production prospects for the 2011 corn crop are less in question.

Daniel O'Brien is an extension agricultural economist with Kansas State University Research and Extension. Reach him at or (785) 462-6281.