Domestic corn demand for ethanol production has plateaued over the last decade, and the critical market for farmers is unlikely to grow without higher blend rates or a much stronger international market, economists say.
With gasoline-powered cars becoming increasingly fuel-efficient and more hybrid or electric vehicles being adopted in the U.S., growth in the ethanol industry will largely be reliant on increased blend rates, according to the authors of a new report by USDA’s Economic Research Service.
The report’s authors also say foreign gasoline demand will likely stagnate over the next decade.
The importance of the market to corn growers can't be overstated. Nearly four out of every 10 bushels of corn they harvested last year are expected to be used for ethanol, some 5.3 billion of 13.7 billion bushels, according to USDA.
That means that for corn production to increase beyond current levels, producers should look at diversification of demand, says independent economist Dan Basse, president of AgResource Co.
“As we take that step toward electrification and we see auto sales moving in that direction more aggressively, I think we’ll see the ethanol number stay at that 5 billion bushels,” Basse told Agri-Pulse. “This means that if we’re going to see any expansion in corn yield or productivity, we need to see demand coming from other areas.”
The Energy Information Administration, part of the Department of Energy, forecast in 2022 that domestic fuel ethanol consumption would increase only modestly over this decade, growing to 14.7 billion gallons in 2030, up from 13.9 billion gallons in 2021.
The problem for corn growers and ethanol producers is that the key driver for ethanol production — domestic motor gasoline — is set to see only minimal increases and even potential declines from previous years. Estimates based on EIA data indicate motor gasoline consumption could be 135.6 billion gallons in 2030, a 5% decrease from 2018 and 2019 levels.
“We have two ways that we get more ethanol in fuel: either more gas use at the current blend rates or higher blend rates,” said Krista Swanson, the lead economist for the National Corn Growers Association. “This just underscores the need for our policy priorities and those higher blend rates.”
Overall blend rates in the United States have hovered around 10%, though corn and ethanol industry groups have pushed for higher blend levels like E15 to be used. Nine governors last summer also asked the EPA to craft a rule to allow states to permanently sell E15 throughout the summer months.
Thirty-one lawmakers followed up on the request last week, asking the agency to “swiftly and diligently” implement the rule, which is currently under interagency review at the White House Office of Management and Budget. EPA Administrator Michael Regan has pledged to complete the agency's work in advance of the summer 2023 driving season.
Fuel demand plummeted in 2020, when the use of motor gasoline dipped due to pandemic-related travel restrictions and an increase in remote activities.
Production of ethanol for domestic usage and export fell from around 15.8 billion gallons in the 2017/2018 corn marketing year to about 14.3 billion gallons during the 2019/2020 marketing year. Production has since increased, climbing to 14.6 million gallons in 2020/2021 and 15.6 million in 2021/2022.
Meanwhile, the Environmental Protection Agency has proposed keeping the U.S. usage targets for conventional corn ethanol at 15 billion gallons for 2023 and then at 15.25 billion gallons for both 2024 and 2025. EPA is supposed to finalize the targets by June 14.
If demand for ethanol were to start decreasing alongside gasoline demand, it could intensify competition across the Midwest between corn and soybean acres, Basse said. A massive expansion in renewable diesel capacity will increase demand for soybeans, which often utilize the same acres as corn.
American Soybean Association economist Scott Gerlt said that if demand for corn decreases, soybeans will likely pick up some of those acres, though that would likely drive down the overall value of soybeans. Less ethanol production would also mean less byproduct production of dried distiller grains — a common livestock feedstuff — leading to more demand for soybean meal.
Gerlt believes that it will take a while for gasoline consumption to decrease enough to have a significant impact on ethanol. He said the adoption of new vehicles takes time, and hybrid vehicles still use gas, which could contribute to demand in the future.
“I think for a while the effects are going to be fairly muted,” Gerlt said. “In the long run, yeah, this is going to be a big deal, but I don’t think that’s going to be the next decade.”
The market for sustainable aviation fuel, which can be made from ethanol, may help drive additional demand for corn. The USDA researchers say that these fuels “have not been economically competitive” so far, but Basse said that market should not be overlooked.
“The demand pull for sustainable aviation fuel is going to be quite strong,” Basse said. “So I would take the losses in the automobile industry and put them in the airline industry, as few of us want to fly in battery-operated planes.”
South Dakota Farm Bureau President Scott VanderWal told Agri-Pulse that a decrease in demand for ethanol would be worrying for the state's farmers, though he also believes there’s potential for other markets like SAF and livestock feed.
“Farmers are always looking for the best place to get the best return,” he said. “American agriculture is very resilient. If we see something coming that might have an issue, we certainly start looking harder for more things that might be alternatives.”
The USDA report provides a glimpse into the potential for ethanol exports. The researchers ran two scenarios to determine what international fuel ethanol consumption could look like through 2030. The first scenario — called the “historical blends” scenario — assumes countries continue to blend ethanol at historical rates. The second — the “targeted blends” scenario — assumes countries reach currently unmet goals or mandates.
The economists expect international fuel ethanol consumption to increase 5.7% between 2018 and 2030 under the historical blends scenario, which would primarily be driven by demand from India, Brazil and China.
International consumption would see a 180% increase in the same years under the targeted blends scenario, with the demand coming from Canada, China and Brazil.
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