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Cost of corn falls relative to ethanol, boosting refiner margins

Friday, January 9, 2015

Reflecting growing supplies, corn prices have been trending lower since reaching a record high season average farm price of $6.89 per bushel for the 2012/13 marketing year (September/August). Monthly average corn prices fell sharply between July 2013 and January 2014, and then declined further through 2014, reflecting a record 2014 corn crop, projected at 14.4 billion bushels. Corn prices in 2014/15 are projected at $3.50 per bushel, down 50 percent since the summer of 2013. However, throughout this period ethanol prices have remained relatively steady, averaging $2.41 per gallon. Corn is the leading feedstock for ethanol production in the United States, and ethanol represents about 40 percent of total corn use. With the price of corn declining and ethanol prices steady, ethanol producer margins have strengthened over the past 18 months. Higher margins would typically encourage greater production, but with domestic use limited to the 10 percent ethanol blend already used in most gasoline, the market can only expand through increased gasoline use or higher exports. This chart is based on data found in the U.S. Bioenergy Statistics database.

U.S. corn use in ethanol now tracks gasoline consumption

Tuesday, October 21, 2014

The rapid growth in use of U.S. corn to produce ethanol that occurred during the 2000s has slowed sharply since 2010, and now tracks with U.S. gasoline consumption. Lower U.S. gasoline use since 2007, combined with market constraints to increased blending of biofuel, now limits the demand for corn-based ethanol. Nearly all retail gasoline sold in the United States is a 10-percent ethanol blend (E10). Although ethanol demand now plays a more limited role in driving growth in U.S. corn demand, it continues to account for a large share of total U.S. corn use, averaging 39 percent since 2010. This chart is based on data found in ERS's Feed Grains Database and U.S. Bioenergy Statistics. For more analysis, see Feed Outlook: October 2014.

Rural counties lead growth in U.S. natural gas production

Monday, April 28, 2014

From 2000 to 2011, onshore gross withdrawals of natural gas in the lower 48 States increased by about 47 percent, reaching historic highs in every year after 2006. The most rural of counties—those that are outside the commuting area of a metropolitan area and lack a core urban area of at least 10,000 people, so called “nonmetro noncore”—accounted for nearly half of the growth in gas production. This growth is driven by nonmetro noncore gas-producing areas in the country’s midsection. Several metropolitan areas, notably the Fort Worth area in Texas, also contributed to the growth in natural gas production. Nonmetro micropolitan counties (nonmetro counties with small cities) as a whole accounted for only about 13 percent of the growth in natural gas production from 2000 to 2011. This chart and the underlying data (which include data on natural gas and oil production, as well as indicators of the degree of rurality) are found in the ERS data product, County-level Oil and Gas Production in the U.S., released in January 2014.

Rural counties drive the 2000-11 growth in U.S. onshore production of oil and natural gas

Friday, February 21, 2014

From 2000 to 2011, onshore gross withdrawals of natural gas in the lower 48 States increased by about 47 percent, reaching historic highs in every year after 2006. Over the same period, withdrawals of oil increased by 11 percent, with much of that growth occurring between 2007 and 2011. Rural counties (nonmetro noncore) accounted for almost all of the growth in oil production and a large share of the growth in gas production based on newly released data from ERS on County-level Oil and Gas Production in the U.S. While just over 35 percent of counties in the lower 48 States reported some level of oil or natural gas production during 2000-11, sizeable changes in production levels were more concentrated. Interestingly, the number of counties with an increase in oil and gas production of $20 million or more over the decade (218 counties) was nearly the same as the number (212) with a decrease of $20 million or more. This map is found in the Documentation and Maps page of the data product County-level Oil and Gas Production in the U.S., and also in the Amber Waves article, "Onshore Oil and Gas Development in the Lower 48 States: Introducing a County-Level Database of Production for 2000-2011."

Emerging energy industries have had varied impacts on local employment in rural areas

Tuesday, December 24, 2013

In rural areas of the United States, expansion of three emerging energy industries—unconventional natural gas extraction, wind power development, and corn-based ethanol production—has led, on average, to net gains in local employment over the last decade. Natural gas development created a 12-percent increase in employment from 1999 to 2007 in select counties with increased drilling. In counties with some wind turbine installation, employment grew less than 1 percent from 2000 to 2008; counties adding an ethanol plant had a similar change. The share of total job growth contributed by each energy industry also varied, with natural gas development accounting for roughly half of the total employment growth for the typical gas-producing county. Because of the small change in overall employment in ethanol plant counties, the employment effect of the typical ethanol plant within closely-linked industries also represented a large share of employment growth (32 percent). This chart is found in the ERS report, Emerging Energy Industries and Rural Growth, ERR-159, November 2013.

E10 blend wall forecast to constrain compliance with conventional Renewable Fuel Standard (RFS)

Monday, June 3, 2013

Declining use of gasoline in the United States, combined with market constraints to growth in the blending of biofuel, have resulted in U.S. ethanol use falling short of the Federal Renewable Fuel Standard (RFS), energy legislation that mandates minimum annual levels of biofuel consumption in the United States. Annual U.S. gasoline use has declined from its 142-billion-gallon peak in 2007 to about 133 billion gallons now, reducing the size of the existing U.S. market for ethanol. Nearly all retail gasoline sold in the United States is a 10-percent ethanol blend (E10). The limited ability to expand use of higher ethanol blends creates an effective constraint on total ethanol use at near 10 percent of total gasoline consumption—the E10 blend wall. As a result, ethanol use is falling short of the portion of the RFS mandate that can be met with corn-based ethanol. This gap is expected to widen in the future as gasoline consumption declines further and the RFS mandates higher levels of biofuel consumption. This chart appears in High RIN Prices Signal Constraints to U.S. Ethanol Expansion, Feed Outlook special article, April 2013.

High Renewable Identification Number (RIN) prices signal constraints to U.S. ethanol expansion

Tuesday, May 7, 2013

Renewable Identification Numbers (RINs) are codes assigned to batches of renewable fuel used to administer the federal Renewable Fuel Standard (RFS), which specifies minimum annual levels of U.S. biofuel consumption. Obligated parties under the RFS use RINs to report qualifying biofuel use to the U.S. Environmental Protection Agency to demonstrate compliance with their annual RFS requirements. After many years of relatively low prices for conventional ethanol RINs, those prices have recently risen sharply because RFS ethanol mandates now exceed ethanol use. This result reflects declining gasoline use and technical constraints on blending more than 10 percent ethanol in U.S. gasoline—the so-called E10 blend wall. The gap between ethanol mandates and ethanol use, together with the anticipated depletion of excess RINs from prior years, are driving up RIN prices. Additional factors that may be affecting RIN prices include uncertainties regarding potential regulatory and legislative actions. This chart appears in “High RIN Prices Signal Constraints to U.S. Ethanol Expansion,” in Feed Outlook: April 2013 (pages 18-22).

Farms involved in rural development related activities vary by type of activity

Thursday, March 28, 2013

While rural development efforts generally focus on the nonfarm economy in the United States, over the last 10 years, several USDA Rural Development programs have put increased emphasis on funding farm-related business activities associated with renewable energy, local/regional food industries, and the use of farm and ranch natural resources. Using data from the 2007 Agricultural Resource Management Survey, the characteristics of farms involved in organic farming, value-added agriculture, direct marketing, agritourism, and energy/electricity production are compared in this chart. Household wealth and income are important indicators of financial capacity, or the ability to make financial investments in farm activities. Average farm household net worth was highest for agritourism farms ($2.0 million) and lowest for direct marketing farms ($631,000). Total household income exhibited a different pattern and was highest for energy/electricity farms ($165,000 annually) and value-added farms ($90,000 annually), on average. The income generated by these rural development-related activities is considered part of farm income (which was highest, on average, for energy/electricity and organic farms, and negative for agritourism farms). This chart comes from the ERS report, Farm Activities Associated With Rural Development Initiatives, ERR-134, May 2012.

Opportunities for rural wealth creation depend on location and timing of investment

Thursday, November 15, 2012

As the location and boom-bust cycle in ethanol production demonstrates, opportunities for wealth creation (in this case, investing in physical business assets) can be influenced by both temporal and spatial factors. The ethanol production boom in the United States was stimulated by rising oil and gasoline prices relative to corn prices, efficiency improvements in ethanol processing technology, and Federal and State government policies that provided incentives for ethanol production. These temporally-specific drivers, together with comparative advantages of particular locations for ethanol processing--favorable access to corn production and transportation infrastructure--led to rapid expansion of ethanol plants in many rural communities, especially in the Corn Belt over the last decade. In rural places lacking these advantages, ethanol production was less likely to be profitable, and efforts to promote it could impede wealth creation. Even where such advantages exist, changes in the temporal context, such as changes in the relative price of ethanol and corn, have reduced profits and caused some plants to go out of business. This chart appears in "Creating Rural Wealth: A New Lens for Rural Development Efforts" in the September 2012 issue of ERS's Amber Waves magazine.

China has become a significant export market for U.S. DDGS, a co-product of the corn ethanol process

Wednesday, August 22, 2012

The expansion of corn-based ethanol production in the United States yields a large volume of residual co-products called distillers dried grain with solubles (DDGS). Approximately 75 percent of DDGS are utilized in the domestic U.S. market, but Chinese importers seeking raw materials for animal feed have emerged as a significant export market. High feed prices and favorable tax treatment within China stimulated a surge of imports of U.S. DDGS during 2009-11. China's potential demand for U.S. DDGS depends on various factors that include the price of corn, Chinese policy, and the availability and price of other substitute feed ingredients, such as the byproducts of grain processing in China (residual products from alcohol production). Demand is robust, but slower growth in the U.S. supply of DDGS and uncertainties about Chinese policy may constrain growth in exports to China. This chart is found in China's Market for Distillers Dried Grains and the Key Influences on Its Longer Run Potential, FDS-12g-01, August 2012.

Young operators are not uncommon on farms involved in rural development-related on-farm activities

Monday, August 13, 2012

Five on-farm rural development-related activities were examined in a recent ERS study. Using data from the 2007 Agricultural Resource Management Survey, the characteristics, such as operator age, of farms participating in organic farming, value-added agriculture, direct marketing, agritourism, or renewable energy/electricity production were considered. With the exception of agritourism farms, younger farmers (under 45 years of age) were more likely to operate development-related farms than they were for all other farms. Young operators were most common on energy/electricity farms (26 percent). Older farmers (65 years of age and older) played a larger role as operators of agritourism farms (40.4 percent) than for the other farm activities. This chart comes from Farm Activities Associated With Rural Development Initiatives, ERR-134, May 2012.

Ethanol strengthens the link between agriculture and energy markets

Monday, July 30, 2012

Historically, the correlation between agricultural prices and energy prices was weak and primarily reflected the role of energy as an input in agricultural production. However, the growing use of corn to produce energy has strengthened the link between these two markets. A recent study by an ERS economist found that price relationships between the U.S. corn and gasoline markets strengthened significantly after March 2008 and continue to be highly correlated. From March 2008 to March 2011, ethanol supply and demand accounted for about 23 percent of the variation in the price of corn, while corn market conditions accounted for about 27 percent of ethanol's price variation. At the same time, about 16 and 17 percent of gasoline price variation can be attributed to shocks to ethanol and corn markets, respectively. The impacts of corn and ethanol prices on gasoline price volatility are surprisingly large given that ethanol is only a small portion of the overall energy market. This chart appeared in the June 2012 issue of Amber Waves magazine.

Growth of U.S. corn used in ethanol production projected to slow

Wednesday, February 22, 2012

High levels of domestic corn-based ethanol production are projected to continue over the next decade, with about 36 percent of total corn use projected to go to ethanol production if current laws remain in effect and specific assumptions about macroeconomic and international conditions, weather, and government policies hold. However, gains are expected to be smaller than have occurred in recent years. The projected slower expansion reflects only moderate near-term growth in overall U.S. gasoline consumption followed by declines later in the decade, limited potential for further market penetration of ethanol into the E10 (10-percent ethanol blend) market, constraints in the E15 (15-percent ethanol blend) market, and the small size of the E85 (85-percent ethanol blend) market. This chart is found in USDA Agricultural Projections to 2021, OCE-2012-1, February 2012.

Public funding for bioenergy R&D in OECD countries

Thursday, February 9, 2012

Government support for bioenergy R&D began in the 1970s following the energy crises of that period. Funding of bioenergy R&D in OECD countries waned in the 1980s but began to recover in the 1990s and then tripled between 2000 and 2007, rising from around $200 million per year to over $600 million per year. R&D bioenergy expenditures fell after 2007 in many OECD countries with the onset of the global financial crisis and economic recession but were boosted in 2009 in the United States by economic stimulus funding provided by the American Recovery and Reconstruction Act of 2009 (ARRA). Historically, the U.S. Government has invested more on biofuel-related R&D than any developed country, accounting for nearly 40 percent of total public bioenergy R&D by OECD countries since 1974. Other OECD countries with major bioenergy R&D programs include Canada, Japan, and Sweden. This chart is found in the ERS report, Research Investments and Market Structure in the Food Processing, Agricultural Input, and Biofuel Industries Worldwide, ERR-130, December 2011.

Links between energy and agricultural markets

Wednesday, May 11, 2011

Barrels and bushels are now more intertwined through corn-based ethanol. While energy as an input remains a cost for corn production, it is now also an indirect competitor as it influences corn demand and prices. Swings in fossil fuel prices can shift demand for corn as an ethanol feedstock. High oil prices boost demand for ethanol when ethanol is priced lower than gasoline on an energy-equivalent basis. Although ethanol has a large impact on the corn market (33 percent of use), its impact on the massive gasoline market is limited (less than 8 percent of use). However, its role in both markets is growing. This chart is from the Bioenergy topic, April 2011.

Ethanol production, along with other factors, affects agricultural commodity markets

Tuesday, May 3, 2011

Increased ethanol production has created a new source of demand for corn that affects prices, acreage allocations, exports, and the livestock sector. Corn prices rose in tandem with ethanol production, resulting in higher incomes from corn production. Although costs for users of corn such as livestock producers, the food industry, and foreign buyers increased with ethanol production, other factors, such as low global stocks, droughts, exchange rates, policy responses by some major trading countries, and rising incomes in some countries such as India and China have also contributed to price increases, especially during the 2006-08 period. This chart is from the Bioenergy topic page, April 2011.

Ethanol refineries locate near feedstock sources

Monday, April 4, 2011

Corn is the feedstock for 97 percent of the ethanol produced in the United States, so refineries are heavily concentrated in the Corn Belt. Ethanol must be shipped long distances, usually by rail, to reach the major fuel markets on the east and west coasts. Refineries also locate near markets for coproducts such as distillers' grains, which are sold as feed to the livestock industry. As new technologies enable the commercial production of ethanol and other biofuels from feedstocks such as prairie grasses, woody biomass, and urban wastes, refineries will likely be built in other parts of the country and production will be more geographically dispersed. This map is from the September 2010 issue of Amber Waves magazine.

More farms find methane digesters profitable at higher carbon prices

Monday, March 21, 2011

Methane digester systems capture methane from lagoon or pit manure storage facilities and use it as a fuel to generate electricity or heat. In addition to providing a renewable source of energy, digesters can reduce greenhouse gas emissions and provide other environmental benefits. Methane digesters have not been widely adopted in the United States mainly because the costs of constructing and maintaining these systems have exceeded the value of the benefits provided to the operator. But policies to reduce greenhouse gas emissions could make such biogas recovery facilities profitable for many livestock producers. Without a carbon market (when the price is zero), no hog and few dairy operations find it profitable to adopt a digester. As the carbon price increases, more operations adopt digesters, lowering emissions. At a carbon price of $13, greenhouse gas emissions could be reduced by 9.8 and 12.4 million tons (carbon dioxide equivalent) for the dairy and hog sectors, respectively. This amounts to reductions of 61-62 percent of manure-generated methane in these sectors. A doubling of the carbon price to $26 could cause manure-based methane emissions from dairy and hogs together to be reduced by 78 percent. This chart was originally published in Carbon Prices and the Adoption of Methane Digesters on Dairy and Hog Farms, EB-16, February 2011.

Growth in corn-based ethanol production in the United States projected to slow

Thursday, February 24, 2011

USDA Agricultural Projections to 2020, released in February 2011, provides longrun projections for the farm sector for the next 10 years. These annual projections cover agricultural commodities, agricultural trade, and aggregate indicators of the sector, such as farm income and food prices. Use of U.S. corn for the production of ethanol is projected to continue rising, but less rapidly than the sharp pace over the past 5 years. Global economic growth underlies increases in U.S. corn exports. This chart was originally published in USDA Agricultural Projections to 2020, OCE-111, February 2011.

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