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A Fresh Look at Corn Stocks, Co-products, and Ethanol Production

September 30, 2011


According to the USDA quarterly grain stocks report released this morning, end stocks of corn for the 2010/2011 marketing year stand at 1.13 billion bushels.  That is nearly 200 million bushels higher than many experts were predicting and an indication that the market is working to ensure sufficient supplies of corn remain available for all uses. Pushing corn stocks back above one billion bushels is important for the psyche of the market.  Having more corn available should somewhat ease supply concerns brought on by poor growing conditions this year and provide more of a buffer until farmers complete the harvest of this year's crop.  Despite this temporary tightness in the corn market, it is clear that with the proper market signals American farmers can and will ensure enough corn is available for all uses. As the chart below demonstrates, the livestock feed produced at US ethanol biorefineries (known as distillers grains or DDGS) provides a substantial amount of supply to the feed market.  On a net basis, ethanol production consumes 25 percent of the nation's corn crop.  When the amount of corn used for ethanol feed co-products is combined with feed and residual demand, total feed demand becomes 6.35 billion bushels, or 47 percent of expected use in 2011/12. Much has been made of the smaller than usual carryover in corn supplies and the impact this may have on corn prices.  Predictably, many of the critics of ethanol including fast food chains, corporate livestock and meat processors, and food manufacturers have eagerly sought to blame ethanol production for higher prices.  As the RFA has pointed out time and again, such claims simply lack any fundamental statistical evidence.  As the chart below notes, corn prices hovered between $3-4/bushel and were actually trending downward during the period of high growth for ethanol production (1/09 to 8/10). Ethanol use was flat or declining in the period when corn prices spiked to $6/bushel and then to $7/bushel. The bottom line remains that ethanol's influence on corn prices is marginal and has been greatly exaggerated by our critics.  Corn prices and retail food prices increase for a host of reasons, not the least of which is the price of oil. Speaking of ethanol production, monthly data from the Energy Information Administration is available and shows that through July, the US industry had produced 8.028 billion gallons. Based on these numbers, the industry is on pace to supply more than 13.8 billion gallons for calendar year 2011.  However, it is important to note that ethanol production in August and September has shown a slight downward trend as noted by the weekly ethanol production data.  As the RFA noted on Wednesday, the current 4-week average for ethanol production would yield 13.5 billion gallons of ethanol over a full 52-week year.  The RFA is predicting 2011 ethanol production to be approximately 13.7 billion gallons. To see complete year to date ethanol production, import, and export data, click here.