On Friday, the U.S. Department of Agriculture’s supply and demand forecast has lowered its estimate of how much of this year’s corn harvest the ethanol industry would use by another 100 million bushels. It was the second straight month the forecast has been reduced reflecting lower indicated plant capacity utilization and lower returns for ethanol producers due to recent declines in ethanol prices and continued strength in corn prices.
During a conference call from the Minneapolis Grain Exchange following the report release on Friday, market analyst Brian Hoops with Midwest Market Solutions noted that the decrease was in line with market expectations. “Over time in the next 12 months, if you look at the big picture, the trade would anticipate that ethanol usage would expand rather than contract,” Hoops told reporters. “But at this time it was believed that we would see a small contraction of the usage.”
Meanwhile, exports are projected to be a corresponding 100 million bushels higher on tighter foreign grain supplies and strong export sales. At the projected 2.35 billion bushels, 2007/08 exports would be the highest in 18 years.
It’s also interesting to note that USDA’s objective yield data report in this month’s crop forecast indicates that the number of ears per acre in the ten biggest corn producing states is the highest on record, surpassing the previous record set in 2004.
In summary, corn usage for ethanol is lower than expected this year because the market is adjusting, corn exports are higher than ever, and corn yields are higher than ever.