Ethanol: One Market for a Growing Corn Supply
In July, for the first time, the USDA World Agriculture Supply and Demand Estimate report projected more corn would be used for ethanol than feed. That report suggested that 5 billion bushels of the 2010-’11 corn crop will go for feed while 5.05 billion bushels will get sucked up into ethanol production. For the next corn crop, the numbers are projected at 5.15 billion bushels of corn for ethanol and 5.05 billion bushels for feed.
Those numbers only tell part of the story and when viewed only on the surface, can be misleading, Rick Tolman, CEO of the NCGA cautions. It ignores the fact that corn going into ethanol production isn’t completely consumed. About one third of the corn destined for ethanol production comes out the back end as distillers grains, not to mention multiple coproducts from wet mills. It’s a message the NCGA and, indeed, the entire ethanol industry has declared repeatedly. “Ethanol may be processing more, but basically one-third of what is being processed is coming right back into the livestock ration,” says Paul Bertels, NCGA’s vice president for production and utilization.
In fact, the NCGA asserts, when corn coproducts from ethanol production are taken into account, domestic and international livestock is still the No. 1 use for U.S. corn. In all, 1.2 billion bushels of corn are displaced by distillers grains and corn gluten feed, according to the ProExporter Network, or PRX, which tracks the usage of corn and other crops. Adding that to the 5 billion bushels of corn consumed by U.S. livestock brings the total to 6.2 billion bushels of corn for domestic feed. In addition, another 1.5 billion bushels of corn was exported in the past year. In all, that means about 7.7 billion bushels per year of U.S. corn goes for feed use in the U.S. and overseas—a much higher number than the 5.15 billion bushels the USDA projects will be used for ethanol. Looking at it this way, 43 percent of the corn supply, including ethanol coproducts, becomes feed for livestock, 16 percent of corn and distillers grains is exported and 26 percent is used to produce ethanol. “Ethanol is certainly is important growing market for us, but it is not the largest consumer, livestock still is,” Tolman says.
The key message that needs to be communicated, he tells EPM, is that the U.S. corn supply is growing, thanks to increased yield. According to the USDA, corn farmers produced an average yield of 152.8 bushels of corn per acre in 2010, up 30 percent from the average 20 years ago. Most markets for corn, such as feed, exports, food and industrial, have remained relatively flat during the past decade. Corn use for ethanol, on the other hand, has grown dramatically. “Ethanol has taken up that surplus,” he says. “Otherwise it would have been a burden on farmer’s income, because we’d driven prices down, and we would have had a reduction in acres, because there would be no end use for it.”
The mistake people make when they fall into the food vs. fuel mindset is that the corn supply is of a fixed size, so when more corn is used for fuel, that must mean corn is taken away from uses like food and feed. “People get a little hysterical about the food vs. fuel,” Tolman says. “They believe that we are taking corn away from livestock producers.” That’s not the case, however. “The big difference is the pie is growing. Those pieces that have been going for feed and food are still there—they are not any smaller—it’s just that the pie got bigger.”
Of course, current supply concerns have made this topic even more difficult. Weather conditions reduced the crop size last year and when this article was written in August, it was looking as though abnormally hot weather and low precipitation could mean a tight supply for the second year in a row, Bertels says. Ultimately, corn producers can’t do anything about the weather. “I tell people, we basically plant the crop, we spray the crop and then you enter God’s phase,” he says. Although it’s not yet clear what the final numbers for the 2011 corn crop will be, on Aug. 11 USDA estimated 12.914 billion bushels. That number would put it at the third highest corn crop in history, behind 13.038 billion bushels in 2007 and 13.092 billion bushels in 2009.
What’s in a Footnote?
Although the USDA doesn’t add ethanol’s coproducts to the numbers for livestock feed from corn, this spring the agency did make a change to the way it reports the amount of corn going for ethanol production. On the April 8 report, a line in the WASDE report was changed from “ethanol for fuel” to “ethanol & by-products.” In addition, a footnote was added to define the line as “Corn processed in ethanol plants to produce ethanol and co-products including distillers' grains, corn gluten feed, corn gluten meal and corn oil.”
The NCGA considers it a step in the right direction. “It at least gives this some credence,” Tolman says. “Previously when we’d raise this issue with critics or the general media out there, the nonfarm media, there was nothing we could relate back to. Now we can at least show them the USDA footnote and at least show them that what we’re saying has some official validity to it.” Bertels agreed the change is a positive. “It has gotten people to start to talk about it,” he says.
Of course, it would provide a more accurate picture of total feed from corn if the USDA would expand its feed category to include distillers grains and other coproducts. Ideally, Tolman would like to see the USDA display its feed statistics both ways, the way it does currently, plus showing a figure for livestock feed supply with distillers grains and corn combined. “There’s a story to tell. What they’re doing is direct shipments, and there’s a story to tell [about] what’s actually consumed,” he says. Still, Tolman understands why USDA doesn’t do it that way. “They’re just looking at first purchasers so it’s a little bit of a tricky issue for them,” he says.
As much as he’d like to see it happen, Bertels just doesn’t believe the USDA will change its corn-for-feed reporting ways. Part of the problem is nailing down accurate coproduct numbers. “Nobody really knows how much DDG is produced,” he says, adding that doesn’t mean there aren’t some pretty good guesstimates out there. PRX, the service NCGA uses, tracks corn and distillers grains, coming up with what the NCGA considers more accurate numbers than those reported by USDA. Yes, it would be wonderful if the USDA followed the PRX model, Bertels says, but he doesn’t hold out much hope.
Another issue is that the USDA doesn’t conduct feed-use surveys. The agency makes many of its projections based on surveys, such as crop yield, exports and even livestock numbers. However, on the feed side, the USDA doesn’t really make good estimates, Bertels says. The feed category covers feed and residual, a term that isn’t defined well. With a large crop, the residual portion tends to grow, and with a tight crop supply residual uses shrink. “It’s like a ledger, everything has got to basically zero out,” he says. “Well, that’s the fudge factor.”
What About Food Use?
Although more than 99 percent of the corn produced in the U.S. is field corn, used primarily for feed and ethanol production, the NCGA recognizes that corn is a key ingredient in food items as well as many industrial uses. “I don’t know that anybody has a fully comprehensive list of all the things that corn goes into,” Tolman says, “from the paper industry, the coating that goes on books and paper, to electronics industry, to the hospital and pharmaceutical industry. That use that goes for food and industrial is relatively small compared to ethanol and feed use but it is still important.”
One of the biggest uses of corn for food products is high-fructose corn syrup. The NCGA estimated in its 2010 World of Corn report that 3.7 billion bushels of corn was processed into ethanol that year. Compare that to 515 million bushels of corn processed into high-fructose corn syrup. Corn for beverages and manufacturing has stayed fairly steady since 2000 at 130 million bushels of corn, to 2010 at 135 million bushels of corn. Corn for cereal and food rose from 185 million bushels of corn in 2000 to 197 million bushels in 2010. “There is definitely a very important, although small, segment for human consumption,” Tolman says, adding that, although field corn is used to produce some food products and ingredients, a significant portion of the corn grown for human consumption is white corn, which is kept separate from field corn used for feed and ethanol production.
It’s disingenuous, Bertels says, to say that corn use for ethanol is taking food out of the mouths of the hungry. Nearly three times more corn goes into sweeteners for soft drinks than anything the average person would consider a corn food product, such as corn chips or corn flakes—and those markets are still being served by the U.S. corn industry. “If we were taking corn away from anyplace, we would be taking it away from foreign livestock,” Bertels says, “but we are not even doing that.”
Corn exports to foreign countries were 1.9 billion bushels in 2000 and peaked at 2.4 billion bushels in 2007. The number did drop to about 1.9 billion bushels for the next three years, although, again, that number doesn’t include exports of distillers grains, which replaced some of the corn that was formerly exported. From 2008 to 2010, distillers grains exports increased by 60 percent. In all, 9 million metric tons of distillers grains were exported in 2010, according to numbers from the Renewable Fuels Association. From January to April this year, 2.6 million metric tons of distillers grains have been exported, nearly identical to the amount exported during the same time period last year.
What about developing countries? The leading importers of U.S. corn are Japan, Mexico, South Korea, Taiwan, Egypt, Canada, China, Venezuela, Columbia and the Dominican Republic. The NCGA estimates that 80 percent of the corn exported from the U.S. is used for livestock feed, not food. “We’re not starving the Third World of corn because it wasn’t going there to start with,” Bertels says. “There’s a lot of people that are opposed to ethanol that are looking for any kind of hook to hang their criticism on.”
A related criticism is that ethanol production takes corn away from livestock feed, a hardship on those industries. In early August, the NCGA noted that a newly released study found that profits rose for the beef and dairy farm industries since the renewable fuel standard was expanded in 2007. The report, completed by Texas A&M University and Doane Advisory Services, verifies NCGA’s positions that increased ethanol production has not negatively impacted the profitability of key livestock markets. “For years, corn farmers have understood that we have the ability to supply both growing ethanol and livestock producers simultaneously without negatively impacting these valued customers,” says NCGA President Bart Schott, pointing to increasing yields.
The report looked at the 2011-’16 economic outlook of six representative beef cattle ranches and six representative dairy farms. The baselines in the Food and Agricultural Policy Research Institute for 2007 and 2011 were compared to reflect changes since the Energy Independence and Security Act of 2007 was enacted. The 2011 baseline did reflect higher feed price, meaning higher feed costs per head for beef cattle ranches and dairies. On the other hand, net cash farm incomes were projected to be higher in 2011 due to higher beef and milk prices. “While it is easy to reiterate artificial arguments against the use of ethanol, we believe this study clearly illustrates the fallacies on which they are often based,” Schott says. “This study again concludes that, in reality, we do not have to choose between using corn for food or fuel.”
Author: Holly Jessen
Associate Editor, Ethanol Producer Magazine