WASHINGTON, Feb. 26, 2014 - A USDA report offering “long-run” projections through 2023 says ethanol production will continue to grow over the next several years, but at a reduced rate when compared with that recorded during this century’s first decade. Still, the multi-agency document says producing the alternative fuel will account for about 35 percent of total corn use.
The analysis says the growth rates for the production of ethanol and biodiesel each drop to less than 3 percent per year, noting that for ethanol, the rate is less than half that recorded over the last five years, and represents only 10 percent of the growth of biodiesel since 2009.
Ethanol industry leaders do not fully dispute the USDA forecast, but offer a caveat.
“USDA's projection of slower but steady growth in the ethanol sector is consistent with the projected demand for grain-based ethanol required by the Renewable Fuel Standard (RFS),” says Renewable Fuels Association President and CEO Bob Dinneen. “But ethanol is the lowest cost liquid transportation fuel in the world today. USDA may not be fully accounting for the potential for increased ethanol demand for export.”
Still, the association and others in the industry also say that the development of a new generation of biofuels that moves beyond corn as a feedstock including those from cellulosic materials is ultimately essential to the long-term success of their industry.
(Ethanol advocates also dispute the percentage used by USDA to measure corn used for ethanol production, contending that about a third of the corn is returned as an ethanol byproduct Dried Distillers Grains, or DDGs – used for livestock feed. The industry contends that, less the DDGs, only about 25 percent of yellow corn produced actually goes to making ethanol.)
With contributions from every economic research division within USDA, the analysis says the 10-percent ethanol “blend wall” often cited during the current debate over an EPA proposal to reduce biofuel blending requirements under the RFS in 2014 will slow any expansion in ethanol production over the next 10 years.
The “blend wall” is the point where demand for gasoline declines to the point where there are insufficient amounts to blend the amount of biofuel mandated by the RFS. The USDA report projects gasoline consumption to continue to fall over the next decade and says that while most U.S. gasoline continues to be a 10-percent ethanol blend (E10), infrastructural constraints limit growth in the relatively new E15 market. The E85 market serving flex-fuel vehicles is growing, the report concedes, but “remains very small.” For a map of stations, click here.
Citing reductions EPA made in the 2013 RFS and proposed for the 2014 RFS, the USDA report assumes that EPA will adjust the advanced biofuel and total renewable fuel mandates to reflect market conditions. As a consequence, the authors project that the advanced biofuel mandate will remain low.
They also assume the $1-per-gallon tax credit for blending biodiesel that expired at the end of 2013 will remain unavailable; though they project the biomass-based diesel use mandate that reached 1.28 billion gallons for 2013 will stay at that level for the next several years.
The National Biodiesel Board has strenuously opposed EPA’s proposal to keep the 2014 RFS mandate at 1.28 billion gallons, noting that the industry actually produced more than 1.7 billion gallons last year. However, that rate of production is already being hit hard by the expiration of the biodiesel tax credit, with a majority of plants producing the fuel from soybean oil operating with zero to negative margins since the end of the year.
That does not bode well for the biodiesel industry, given the USDA report’s assertion that soybean oil will account for about half of total biodiesel production through 2023.
At the international level, USDA says expansion of biofuel production globally is also projected to continue during the next decade, although, like in the United States, at a slower pace than over the last half decade. As a result, demand for biofuel feedstocks will also grow at a slower pace.
The U.S., Brazil, the EU and Argentina will continue to be the largest biofuel producers. The EU will remain the world’s largest importer of biofuels through 2023, with a majority coming from Argentina, which is the world’s dominant oil-based biodiesel exporter. Much of the EU’s ethanol imports will come from Brazil, the world’s biggest exporter of cane-based ethanol. The EU is also projected to import oilseeds and vegetable oils for biodiesel feedstock use, mainly from Ukraine, Russia, and Indonesia.
Exports from Argentina and Brazil grow steadily in the projections, but are constrained as both countries are expected to increase their domestic use of biofuels.
Despite the reduced rate of global biofuel production, prices for many crops will surge after a near-term decline. Longer-term prices will be driven up, in part, by a biofuel demand sufficient to help hold corn and oilseeds prices above pre-2007 levels, the USDA report states. Lower corn prices and increasing meat production underlie projected gains in feed and residual corn use. Also supporting gains in feed use of corn is a slowdown in the growth of production of distillers grains, a co-product of dry mill ethanol production, as the corn-based ethanol expansion moderates.
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