Corn use by ethanol plants to ‘stop growing’

Growth in US corn ethanol production may not just slow next season – but stall altogether in the face of a domestic harvest 3m tonnes weaker than US officials are factoring in.

Many observers have forecast a slowdown in the rapid expansion in corn’s conversion into bioethanol, in the face of higher prices of the grain and the industry’s arrival at the so-called "blend wall" – the limit of its support from government consumption mandates.

Goldman Sachs has pencilled in growth of 50m-100m bushels in corn use by bioethanol plants in 2011-12, with Rabobank outlining expansion by some 130m bushels.

However, the International Grains Council foresees corn use for bioethanol proving "unchanged" next season over 2010-11, with demand from foreign biofuels makers slowing too.

"After rising sharply in recent years, corn used for the manufacture of fuel ethanol is forecast to show very little growth [worldwide]," the council said.

‘Sharp decline in yield prospects’

Such an outcome would bring to an end expansion which has taken America’s use of corn for making biofuels from 996m bushels in 2002-03 to an estimated 5.02bn bushels in 2010-11, making the bioethanol industry a bigger consumer of the grain than the livestock sector.

However, the IGC highlighted weakening production prospects for the grain, cutting its world corn output forecast by 10m tonnes to 849m tonnes –a figure 11.5m tonnes below the US Department of Agriculture estimate, if still representing a record high.

The downgrade reflected a "sharp cut" to the forecast for the US corn harvest, the world’s biggest, "because of a sharp decline in yield prospects", in part offset by better hopes for South America.

The US crop was pegged at 325m tonnes (12.8bn bushels), 3m tonnes below the USDA estimate, and implying a yield lower by some 1-1.5m bushels per acre.

‘Milling wheat squeeze’

The IGC was more upbeat over wheat, pegging the global harvest at 677m tonnes, some 5m tonnes higher than the forecast from the USDA, whose data are regarded by many investors as global benchmarks.

"Better-than-expected results in the European Union, former Soviet Union and China outweigh the somewhat reduced prospects in the US and Australia," the council, an intergovernmental group said.

However, much of the extra output will be swallowed up by feed use, as livestock farmers seek cheaper alternatives to corn, the IGC said.

It also highlighted that "stocks of the highest-protein milling wheat are expected to tighten, especially in the US and Canada".

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