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RFA Analysis of USDA WASDE Report

April 8, 2011


PLEASE NOTE THE FOOTNOTE AT THE END OF THE ANALYSIS This morning's April World Agricultural Supply and Demand Estimates (WASDE) report likely will ease some of the tension in the world corn market, as the report showed that the corn supply and carry-out are generally expected to be larger than most market participants were anticipating. While stocks are still relatively tight, today's report shows that the corn supply picture is not quite as bad as some were expecting. Corn stocks—both in the U.S. and globally—are a little more robust than the market was anticipating. USDA did not change the estimate for the 2010-11 U.S. corn carry-out; it remained at 675 million bushels. The trade was expecting carry-out to be lowered to 595 million bushels (to reflect lower-than-expected March 1 stocks number). Some analysts were expecting a drop to as low as 515 million bushels. Corn used to produce ethanol in 2010-11 was raised 50 million bushels to 5 billion bushels. According to USDA,  "...strong blender incentives and positive ethanol producer margins continue to encourage expansion in ethanol production and use. Rising gasoline prices have pulled ethanol prices higher helping to offset increases in corn feedstock costs for ethanol producers." RFA continues to believe USDA is using an overly conservative ethanol yield assumption of 2.7 gallons/bushel, meaning USDA is anticipating ethanol production of 13.5 billion gallons in the 2010-11 marketing year. At the more commonly accepted industry average of 2.8 gallons/bushel, 4.82 billion bushels of corn would be needed to produce 13.5 billion gallons—nearly 200 million bushels less than USDA's estimate. The reduction in corn use for feed results from the USDA expectation that feeders will increase their use of feed wheat as a substitute for corn. Globally, total 2010-11 grain supply (coarse grains, wheat and rice) and carry-out were raised slightly from last month. Global corn carryout is estimated at 122.43 million metric tons, down just 0.5% from last month's estimate. Analysts were expecting the world corn carryover to fall to 121.03 million metric tons. The reason for the stronger-than-expected global stocks number is that global corn production was raised 1.2 million tons, with the biggest increases for Brazil, Uganda, and Paraguay. Production for Brazil is raised 2 million tons with higher reported area and yields for their primary summer crop and an increase in reported plantings for their winter crop. A 0.5-million-ton increase for Uganda corn is part of a number of revisions for African countries this month. Production for Paraguay is raised 0.4 million tons as favorable growing season weather boosted yields. RFA's CEO and President Bob Dinneen noted, "Global corn production is looking stronger than many were expecting. In particular, production in South America and Africa has been robust. Farmers in countries like Uganda are responding to higher world prices by increasing production through the use of better technology and improved farming practices. Higher prices are allowing farmers in sub-Saharan Africa and other regions to participate in the world market and likely many of them are earning a profit on their crops for the first time in years." FOOTNOTE For the first time, this morning's WASDE report accurately indicated that corn processed by the ethanol industry produces both feed and fuel. As RFA has highlighted numerous times in the past, one-third of every bushel used in the ethanol process returns to the animal feed market in the form of distillers grains, corn gluten feed, or corn gluten meal. Only the starch portion of the grain is converted into ethanol, while the remaining protein, fat and fiber are concentrated and marketed around the world as feed for cattle, swine, and poultry. Thus, on a net basis, only two-thirds of each bushel of corn processed by a biorefinery is converted to ethanol. Historically, USDA has reported only the gross usage of corn for ethanol, implying that the ethanol process uses the entire bushel of corn for fuel production. This has led to inflated claims that the ethanol industry is using "nearly 40%" of the 2010/11 corn supply. As we discussed here and here, when the production of animal feed co-products is taken into account, only 23% of the 2010/11 U.S. corn supply and 3% of the global grain supply is truly being used for fuel production. In today's WASDE report, USDA relabeled the category previously called "ethanol for fuel" as "ethanol & byproducts," with a footnote explaining that corn used for ethanol also produces distillers grains, corn gluten feed, corn gluten meal and corn oil. RFA applauds USDA for revising its monthly corn supply-demand reports to better account for the fact that corn processed by ethanol facilities results in the production of both ethanol and animal feed. Ethanol co-products have become a substantial component of the global feed market. In 2010/11, the ethanol industry is expected to produce more than 39 million metric tons of animal feed, enough to produce 50 billion quarter-pound hamburgers—or seven patties for every person on the planet. In fact, the 39 mmt of animal feed produced by the U.S. ethanol industry this marketing year is nearly equal to the combined amount of corn produced by Mexico and Argentina—the world's fourth- and fifth-leading corn producers. In 2010, the U.S. exported 9 mmt of distillers grains—the same volume of corn imported by Mexico, which is the second-leading importer of U.S. corn.