Faltering Ethanol Use Concerning To Producers

Ethanol use, and the corn needed to make it, isn’t growing like it once did, and corn and ethanol producers are concerned.

With the vast majority of US domestic demand for ethanol in the form of E10 gasoline blends, growth in domestic ethanol use is tied directly to growth in the overall consumption of gasoline, said University of Illinois Economist Scott Irwin in the latest Illinois Farmdocdaily.

Irwin analyzed recent trends in US gasoline consumption with an eye toward the implications for domestic ethanol use in the future.  The data show gasoline consumption grew 1.7% a year from 1990-2004, dipped to a minus 0.2% per year from 2005-2014 and then recovered back to 1.1% growth per year in 2015-2018.

However, the 2015-2018 average shows gasoline consumption was basically flat the last two years, which is puzzling because the underlying economic fundamentals for growth in gasoline consumption have been strong, Irwin said.  This is concerning for the ethanol industry because flatlining 2017-2018 gasoline consumption may be an early warning sign of a long-term systemic decline in gasoline demand.




Long-term projections from the US Energy Information Administration incorporated that assumption and projected a substantial drop in gasoline consumption over the next decade, the economist said.  This has implications for ethanol consumption assuming it continues to be tied to E10 blends.

The EIA projections imply a 2.6-billion-gallon decline in the E10 blend wall by 2030, Irwin said.  It is no surprise that the US ethanol industry is pushing hard for expansion of E15 use, which may be required for the industry to just stay even in total domestic consumption.

It also portends an intensification of the political battle over the Renewable Fuels Standard, he said.




In essence, gasoline consumption is equal to total miles traveled divided by average fuel efficiency, Irwin said.

Between 1990 and 2004, during the era of low and steady real crude oil prices, Vehicle Miles Traveled grew at the remarkably steady pace of 60.5 billion miles per year, he said.  The effect of rising real crude oil and gasoline prices is first seen in the diminished growth of VMT in 2005-2007 and then, combined with the effects of the Great Recession of 2008-2009, an absolute decline to a low of 2,946 billion miles in 2011.

From peak to trough, VMT fell by 85 billion or 2.8%, Irwin said.  The effect of the sharp decline in crude oil prices since 2014 is evident in the recovery of VMT above the 2007 peak to about 3,200 billion miles in 2017 and 2018.

The average MPG showed modest but steady gains of about 0.1 MPG from 1992 through 2010.  Then, under the pressure of rising crude prices and some policy incentives, consumers began buying more fuel-efficient vehicles, and MPG jumped, reaching 22.2 MPG in 2012.

That was followed by another jump to 22.5 MPG and higher in 2017 and 2018.




Cash cattle trading in the Plains was reported at $126 to $127 per cwt on a live basis, steady to down $1 from last week.  Dressed-basis trading was reported at $205, down $2 to $3.

The USDA choice cutout Thursday was down $0.03 per cwt at $232.93, while select was off $0.53 at $219.75.  The choice/select spread widened to $13.18 from $12.68 with 133 loads of fabricated product sold into the spot market.

There were no tenders Thursday for deliveries against the Apr futures contract.

The CME Feeder Cattle index for the seven days ended Wednesday, was $144.96 per cwt, down $0.82.  This compares with Thursday’s May contract settlement of $143.55, down $2.97.