Corn demand from ethanol industry to drop in US
Assessment of crop-tour yields, readouts from combine harvester monitors and grain-elevator sales reports have been the talk of the US corn market lately as participants attempt to assess the size of this year's uneven domestic crop.
Demand, however, will soon become the chief determinant of price, as the harvest already under way across the South begins in earnest across the heart of the Corn Belt this month. With ethanol demand topping out, exports threatened by competition, and feed demand constrained by poor margins, corn bears look set to dominate the market.
US ethanol production should play a more subdued role in corn-demand growth after driving it for the past five to seven years as refiners approach the government's mandated alternative fuel production targets and the 10pc "blend wall" caps the amount of ethanol that can legally be blended into the US fuel stream.
Indeed, the US Department of Agriculture is already projecting corn demand from the ethanol industry to come in below the five billion bushel mark for the second year running. It peaked at 5.02 billion bushels in 2010-11 and then eased to 5.01 billion the year after before dipping to 4.65 billion last year as high corn prices forced a number of refiners to halt production for several weeks.
This levelling off means the ethanol industry is clearly no longer growing at the rates that redefined usage in the 2005-09 era, when corn used in ethanol production vaulted from around 14pc to more than 35pc of total corn demand.
What's more, the general contraction in US fuel demand in recent years due to greater vehicle-fleet efficiency and more prudent driving patterns means that demand for ethanol itself is likely to slow and lead to a further decline in corn consumption by the sector as the industry moves to a more stable phase.
While ethanol has had the fastest-growing share of corn use over the past decade, the feedlot sector remains the largest, and is projected to account for four out of every 10 bushels consumed this year, or around 5.1 billion bushels.