The Whole Picture

Increasing Ethanol Demand and the Likely Price Implications for Corn

While there is no doubt that increasing demand for ethanol is contributing to higher corn prices, the article does not give enough credit to other contributors to higher prices. The amount of corn used for ethanol has increased by about 2 billion bushels over the last five years. However, approximately 1/3 of the calories in corn is left-over for feedstock, so the "adjusted" amount of corn being used for ethanol has increased by about 1.3 billion bushels in the last five years. During the same time, China has switched from a corn exporter to a corn importer -- with a net difference of about 0.5 billion bushels over the same period. Other countries, such as India, have similar situations. When increase non-US demand is combined, the sum is similar to the increase we have for ethanol. If you look at the projections over the next few years, the rate of increase for other countries is accelerating, while the growth rate for ethanol is starting to subside. Last year corn use for ethanol increased by about 1 billion bushels, but this year it is expected to increase by about half that at 0.5 billion bushels. And, of course, you cannot forget the impact of the falling dollar on international commodities. In summary, ethanol is not the "big cause" of increased prices, but one of the "big 3" contributors.