Average corn prices will reach $3.75/bu. in the 2009/10 marketing year and then decline to $3.30 by 2016/17 as ethanol expansion slows, according to USDA’s long-term projections. Corn prices at these levels are record high and “are unprecedented on a sustained basis,” exceeding the previous average high over any 5-year period by more than 50 cents per bushel, an ethanol report released late last month by the department’s Economic Research Service says.
Higher corn prices affect corn’s role as an animal feed. Livestock feeding is the largest use of U.S. corn, typically accounting for 50 percent to 60 percent of the total. With higher prices, corn used for animal feeding declines to 40 percent to 50 percent of the total over the next decade, USDA’s analysis shows.
Ethanol production in the United States totaled almost 5 billion gallons in 2006, about 1 billion gallons more than the previous year. While this was a significant increase, further expansion in the industry is continuing, with production expected to exceed 10 billion gallons by 2009, and 12 billion gallons by 2015, USDA says.
In 2006, ethanol represented 3.5 percent of motor vehicle gasoline supplies in the United States. However, about 14 percent of corn use went to ethanol production in the 2005/06 crop year. While carryover stocks of corn represented about 17.5% of use at the end of 2005/06, expanded use of corn to produce ethanol in the 2006/07 crop year will leave the ending stocks-to-use ratio at 7.5%, USDA says.
With continued strong ethanol expansion, USDA’s long-term projections are that more than 30 percent of the corn crop will be used to produce ethanol by 2009/10, and remaining near that share in subsequent years. Corn carryover stocks remain tight over the next 10 years, representing 4 percent to 6 percent of annual use. Still, even by 2017, ethanol production (by volume) represents less than 8 percent of annual gasoline use in the United States.
In addition to higher prices, USDA says that lower stocks make corn prices potentially more volatile and susceptible to market shocks such as a reduction in production due to drought. The report also says that higher feed costs will increase prices for red meats, poultry, and eggs higher than the inflation rate for several years.
And the impact is not just on corn. With reduced soybean plantings due to the switch to more corn acres, soybean prices rise, reducing exports and carryover stocks. This brings higher prices for soybean meal.
Long term, USDA says, cellulosic-based production of renewable fuels holds some promise, but much research is needed to make it commercially viable and expand beyond the 250-million-gallon minimum for 2013 in the Energy Policy Act.