It might not be good news for drivers, but strength in gasoline and ethanol prices is certainly good news for corn demand.
In its regular monthly supply-demand update released Tuesday, the USDA raised its 2021-22 US corn use for ethanol estimate by 50 million bu from October to 5.25 billion bu - up from 5.028 billion and 4.857 billion bu the previous two years, when pandemic-related slowdowns and shutdowns limited fuel demand. Admittedly, projected corn for ethanol use is still not to back to where it was in the best pre-pandemic year of 2016-17 when it exceeded 5.5 billion bu, but the trend is pointed higher, Purdue University agricultural economist Jim Mintert said in a webinar this week.
“I think that’s going to continue given the strength we’re seeing in gasoline prices,” he said. “So that bodes well for demand for corn at the ethanol plants.”
As gasoline prices move higher, ethanol – which is mixed into the nation’s fuel supply - typically follows. American Ethanol prices have risen about 50% this year, pushing to above US$2/gallon for the first time since 2014. Nearing the $3.50/gallon mark, US gasoline prices are at the highest in almost seven years.
With gasoline and ethanol prices strong, Mintert said processing margins at Midwestern ethanol plants are the best in years, easily topping pre-pandemic levels. Weekly production has moved sharply higher as well, currently running between 9% and 10% above what was seen in the fall of 2019. That marks a sharp contrast to the start of the pandemic in early 2020, when weekly ethanol output cratered as much as 36% versus autumn 2019.
“The strength in ethanol prices is really making these margins pretty good,” Mintert said. “And as a result, ethanol plants are running full bore.”
The US Energy Information Administration is projecting fuel ethanol production will average 1 million barrels/day in 2022, compared to the 2021 estimate of 970,000 barrels and 910,000 barrels in 2020.
Click here to see more...