Rising Ethanol Demand Will Reduce US Corn Ending Stocks, Gro Expects

Rising crude oil prices and gasoline use have sharply increased demand for US ethanol over the past few weeks. Gro expects that corn used in ethanol production will exceed current USDA estimates, lowering corn ending stocks for 2021/22. 

US ethanol production has already shot up 20% in the past five weeks as more corn supplies have become available from the Midwest. Gro’s current forecast of corn usage for ethanol this marketing year is 5.241 billion bushels, 41 million bushels greater than the USDA’s projection in the October WASDE. 

As a result, Gro believes the USDA is currently overestimating corn carryout for 2021/22, as seen via Gro’s US Corn Balance Sheet. Since 35% of the US corn crop goes to making ethanol, higher demand for the fuel additive increases demand for corn. Demand for US gasoline rose nearly 10% year over year in the four weeks ended Oct. 22.

Ethanol production in the latest week was 1.106 million barrels per day, the second-largest weekly pace ever. Production has more than doubled since the COVID-induced low levels of April 2020. High demand also has drawn down ethanol inventory, which is down 12% from its summer peak.  

Gro’s forecast of corn usage for ethanol is based on a regression analysis of the pace of ethanol production so far this year against the historical pace of production for the same time periods in prior years. 

Energy shortages in Europe and Asia also could drive up demand for US ethanol. While US ethanol exports are down 12% so far in 2021 from the previous year, increased global interest in the fuel additive could present an opportunity for the US ethanol industry. 

US corn is also well positioned to pick up more export business, as US export prices on an FOB basis are cheaper than competitors. 

The USDA projects corn consumption for ethanol to rise more than 3% in 2021/22 from the previous year as global energy demand rebounds. But Gro believes the USDA is underestimating corn demand for ethanol, particularly as higher crude oil prices make crushing corn for ethanol more profitable.