Farmer Perspective: Biofuels and trade present a growth opportunity
Did you know that exports of U.S. ethanol should reach record levels in 2018 even after hitting a new record in 2017? That is important and good news in a year when ethanol prices have dipped to a 13-year low.
The U.S. is the world’s largest producer of ethanol, generating nearly 60 percent of the world’s output last year, and is also the world’s largest exporter of ethanol.
Ethanol exports have steadily increased in the last few years and have helped support expanded production levels. In 2015, exports accounted for about 6 percent of domestic production, but in 2018 that figure now stands at 12 percent. Future growth in ethanol production should be crucially tied to export success.
Consider the following:
U.S. ethanol was shipped to Brazil, China, Canada, India, the United Arab Emirates and nearly 40 other countries last year.
China – During the past eight years, China’s consumption of ethanol has been less than 3 percent of its gasoline consumption. It is currently slow rolling an E-10 policy in certain provinces, but the entire country is scheduled to be under an E-10 mandate by 2020. There could be a tremendous gap between what they can produce and what they will need.
India – India currently is blending ethanol at about 2.5 percent of their gasoline consumption. They also have set an E-10 target and will need to import significantly more ethanol to meet that demand.
Japan – Japan has recently set a new goal to increase their blending of gasoline with biofuels to reduce greenhouse gas emissions. Nearly all of that increase will need to be imported, creating an opportunity for the U.S.
Brazil – Brazil has an ethanol blending mandate of 27 percent. Brazil’s domestic production of ethanol is declining as it cannot compete with the price of ethanol imported from the U.S.
Canada – Canada is generally the second-leading destination of U.S. fuel ethanol, receiving nearly 330 million gallons in 2017, 5 percent higher than the level exported in 2016. Canadian demand for U.S. fuel ethanol is driven by different ethanol mandates for gasoline across Canadian provinces, ranging from 5 percent in Alberta, British Columbia and Ontario to as high as 8.5 percent in Manitoba.
Mexico, Vietnam and the Philippines – These three countries have also set E-10 targets for the near future and will all have to rely on imports to reach that goal.
Keep a close eye on ethanol exports and the state of trade pacts and trade negotiations. As the U.S. dominates in biofuels production and trade, increases in global demand likely means good things for U.S. exports of biofuels and potentially good things for the price of corn.
Read more about ethanol's uncertain boost from FBN chief economist, Kevin McNew.
The views expressed in this article are the author's alone and not those of Farmer's Business Network, Inc., its affiliates or members.