The February USDA World Agriculture Supply and Demand Estimate (WASDE) report is out and as expected, it includes some revisions in grain use numbers.
For U.S. corn supplies, USDA lowered its forecast of marketing year ending stocks to 675 million bushels, down 70 million bushels from the January estimate. The change comes from slight increases in the estimates of corn for ethanol use and sweetener/starch use. Globally, USDA is estimating a slightly smaller grain (wheat, rice, corn, etc.) supply than last year's record amount of more than 2.7 billion metric tons. The 2010/11 global supply of grain is less than 1 percent smaller than last year's record.
These revisions will add fuel to the speculative fire, likely pushing prices for corn and other commodities higher. Many will use strong ethanol demand as the rationale to drive the price of corn futures as high as the market will bear. In turn, this will likely cause ill-informed industries and talking heads to pronounce U.S. ethanol production as the root cause of food inflation the world over. As RFA President Bob Dinneen pointed out in this blog post, that simply isn't the case.
Here are a few additional points to ponder:
U.S. ethanol production utilizes just 3% of the world's grain supply on a net basis. Moreover, the industry uses strictly coarse grains, not food grains like rice and wheat.
Total corn demand for ethanol must be viewed in net terms, as 1/3 of every bushel used is returned to the feed market.
USDA may be slightly overestimating corn for ethanol use. Based on their estimates, ethanol production between Sept. 1, 2010 and August 31, 2011 would be nearly 13.7 billion gallons. The RFA is projecting 13.5 billion gallons of production for calendar year 2011, which would be nearly 1 billion gallons more than the Renewable Fuel Standard requirement of 12.6 billion gallons this year. Even with 300-400 million gallons of export opportunity, it seems unlikely the U.S. market could handle all the remaining 13.3-13.4 billion gallons. USDA may also be underestimating ethanol yield per bushel.
Studies from the UK government and the World Bank both make clear that the role of biofuels in driving global commodity and food prices has been overstated.
Time and again, American farmers have answered the call for more grain from roughly the same amount of land. There is no reason to believe the 2011 planting and growing season will be any different. Surging global demand and extreme weather events provide two very compelling reasons why more focus must be put on deploying the most efficient, productive farming technologies the world has to offer. Just as ethanol production has room for productivity improvements, so too does the global farming industry.
