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eNews from Tuesday, March 31, 2009

U.S. Ethanol Fleet Forecast to Run at 67% Nameplate Capacity Through 2010, Says HighQuest Partners Expert

HighQuest Partners  -- March 31, 2009 -- Based on just released data from the USDA, the 2010 US corn crop is projected to be essentially flat at 12.15 billion bushels.   Given current corn demand estimates for food, feed and exports, there would be only ~ 3.4 billion bushels of corn available for 2010 production of ethanol, or enough to produce roughly 9.6 billion gallons.  This is against forecast industry nameplate capacity of 14.5 billion gallons by the end of this year and a 2010 RFS mandate of 12.6 billion gallons. 

The USDA Planting Intentions report released today, which provides the earliest indication of likely corn acreage for the upcoming growing season, estimated 85.0 million acres will be planted in corn this spring.  Given an average growing year with 10-year trend-line yields of 157.3 bushels per harvested acre, corn production will be approximately 12.15 billion bushels.   In order to meet all the demands for corn during the 2009/2010 marketing year, and produce 12.6 billion gallons of ethanol would require a corn crop of 12.9 billion bushels (~ 90 million acres).  

Over the past 2 years, the market has clearly demonstrated that when there is insufficient corn to meet all demands, then ethanol production absorbs the shortfall.   Despite the dramatic run-up in prices from late 2006 through the first half of 2008, there was no material reduction in livestock, dairy and poultry production, which drive demand for corn for feed.  However, after running above 100% of industry wide capacity through 2006 and into early 2007, the ethanol industry has cut back production levels since the third quarter of 2007 to balance demand with available supply.   For the first quarter of 2009, Soyatech estimates industry-wide capacity utilization was just 77% of average nameplate capacity (operating and idled).



The ethanol industry is actually benefiting from the current economic crisis, which has cut demand for livestock, dairy and poultry products, and consequently reduced competing demands for corn.  For the current crop marketing year, HighQuest Partners forecasts feed demand (including DDGs) will be off 3.5% from 2007/2008 based on the current livestock, dairy and poultry data, and on USDA Outlook production estimates for the full year of 2009.  For 2010, HighQuest forecasts feed demand to partially recover on a recovering economy.  
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Author: Hunt Stookey

Hunt Stookey is a managing director of HighQuest Partners, a strategic consulting firm serving the global food, agribusiness and biofuels industries, and a sister company to Soyatech.   He can be reached at hstookey@highquestpartners.com or at (978) 887-8800.

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