Rationing the 2012 corn crop revisited
Ethanol has become the dominant source of octane enhancement in the motor fuel supply and few alternatives are available in the short run in adequate quantity or at competitive prices to replace ethanol. As a result, the consumption of ethanol is expected to remain very large under all three production scenarios. See our recent analysis of ethanol demand here. Ethanol demand will be motivated by the need for octane rather than the RFS mandate, but will be limited by the blend wall plus net exports. Here we calculate that the blend wall for the 2012-13 marketing year is 13.3 billion gallons of ethanol and assume that net trade of ethanol is zero. Assuming a yield of 2.8 gallons of ethanol per bushel of corn, 4.75 billion bushels would be required to produce 13.3 billion gallons of ethanol. Allowing for some continued drawdown in ethanol stocks, we use a projection of 4.7 billion bushels of corn for ethanol and by-product production for two of the alternative scenarios. The forecast is reduced to 4.6 billion bushels for the smallest supply scenario in recognition that high corn and ethanol prices might motivate the use of larger quantities of other octane enhancers.
The projection of corn exports and non-ethanol processing uses of corn under each scenario contain small deviations from the USDA projections, reflecting larger or smaller supplies and lower or higher prices. Feed and residual use of corn is then calculated as the difference between total consumption and consumption in the other sectors. Those projections underscore the magnitude of rationing that would be required in the domestic livestock sector under each production scenario. The feed and residual figures actually understate the magnitude of year-over-year reduction in “corn based” feeding that would be required since each scenario includes less corn used for ethanol production than used during the current marketing year and therefore a smaller supply of distillers’ grain. Assuming that each bushel of corn used for ethanol produces one-third bushel equivalent of distillers’ grain and that three quarters of the distillers’ grain is used domestically, a reduction from 5 billion to 4.7 billion bushels of corn for ethanol reduces the domestic availability of corn equivalents by about 75 million bushels. Ethanol use at 4.6 billion bushels would reduce the domestic availability of corn equivalents by about 100 million bushels. The USDA’s projection of 4.5 billion bushels for ethanol reflects a reduction of about 125 million bushels of corn equivalents. Compared to the projection of feed and residual use and implied domestic use of distillers’ grain during the current year, the USDA projections of corn equivalent consumption for 2012-13 represent a year-over-year decline of 10 percent. The three alternative scenarios represent declines of 8, 16, and 20 percent, respectively, in corn based feed and residual use.