USDA releases 10-year forecasts for ethanol, biodiesel production
By Erin Voegele | February 19, 2018
The USDA Economic Research Service has released updated 10-year agricultural projections through 2027. The report addresses a wide range of agricultural commodities, agricultural trade and aggregate indicators of the sector, including projections for corn and ethanol production.
The projections included in USDA's report are based on specific assumptions about macroeconomic conditions, policy, weather, and international developments, with no domestic or external shocks to global agricultural markets. The report assumes the Agricultural Act of 2014 remains in effect through the projection period.
According to the report, projections for biofuels were completed before the U.S. EPA finalized the 2018 renewable volume obligations (RVOs) under the Renewable Fuel Standard in late November. The projections included in the report are based on the proposed RVOs, which were released in July.
The report states ethanol production is expected to increase during the beginning of the 10-year projection period, but decline throughout the rest of the decade, returning to 2016 levels by the end of the projection period. "Even with the U.S. ethanol production decline, demand for corn to produce ethanol continues to have a strong presence in the sector, accounting for over 35 percent of total U.S. corn use throughout the projection period," said the USDA in the report.
An expected decline in overall U.S. gasoline consumption and the 10-percent ethanol "blend wall" are cited as factors assumed to constrain domestic ethanol consumption over the next decade. However, the report indicates that most gasoline in the U.S. is expected to continue to be an E10 blend. Infrastructure, geographical, and other constraints are projected to limit E15 growth, with the E85 market remaining relatively small. Moderate gains are expected for U.S. ethanol exports, but the USDA's projections estimate these gains will not be large enough to offset declining ethanol use in the domestic market as gasoline consumption falls.
The report predicts the RFS volume requirement for biomass-based diesel will be maintained at 2.1 billion gallons per year throughout the next decade. However, the USDA said some production of biodiesel and renewable diesel above the biomass-based diesel RVO is expected to meet a portion of the nonspecific advanced biofuel requirement.
Soybean oil used to produce U.S. biodiesel is expected to support the annual production of more than 1 billion gallons of biodiesel annually by the second half of the 10-year projection period. Other feedstocks used to produce biomass-based diesel are expected to include distillers corn oil, other first-use vegetable oils, animal fats, and recycled cooking oil.
Global biofuels production is expected to continue to increase over the next 10 years, but at a slower pace than the over the past five years. The slowdown, in part, reflects lower crude oil prices, some decline in U.S. ethanol use, the reluctance of many countries with biofuel programs to push mandates higher when domestic feedstock is inadequate, and the low likelihood that the remaining largest transportation fuel consuming countries that are currently without biofuel programs will introduce them over the next decade. These countries include Russia, Saudi Arabia, and Iran for all biofuels, and Indonesia and Malaysia for ethanol.
USDA's report predicts the U.S., Brazil and EU will remain the world's three largest biofuel producers. Biofuel production in China, Argentina, Thailand, Canada and Indonesia is expected to grow, but remain considerably smaller than the top three. The U.S., Brazil, Canada, the EU and Japan are expected to remain the world's largest importers of biofuels over the next 10 years, with the U.S., Argentina, Brazil, Singapore, Indonesia and Malaysia expected to be the world's largest biofuel exporters. The report predicts that China's goal to reach E10 by 2020 will fall short throughout the baseline projection period.
According to the report, demand for U.S. corn is expected to continue to grow over the next decade, both domestically and internationally, as expanding meat production increases feed usage.
Corn planted area is expected to drop as real prices and relative net returns fall. While falling corn production is expected to characterize the first few years of the projection period, increases are expected in later years. Lower corn prices suggest higher feed and residual use, the USDA said. A projected drop in dstillers grains production is also expected to support the use of corn for feed.
Corn use for ethanol production is expected to decline from a high of more than 38 percent of total to a low of under 35 percent during the 10-year projection period.
The U.S. is expected to remain as the world's largest corn exporter over the next 10 years. A projected slow weakening of the U.S. dollar is expected to improve export prospects. However, combined with greater competition from Brazil, Argentina and Ukraine, and growing domestic feed use, the U.S. market share of global corn trade is expected to slowly fall below 30 percent over the projection period.
The report also predicts that soybeans plantings will rise above corn for the first time ever during the 10-year projection period. Soybean plantings are expected to reach 91 to 92 million acres. Expected increased demand for soybean meal and oil reflect low projected feed prices, increasing livestock, a modest rise in biodiesel and renewable diesel production, and steady demand by foreign importers as incomes continue to rise globally.
According to the USDA, soybean oil used to produce biodiesel in the U.S. is expected to increase to almost 7.3 billion pounds by 2021/22 and later years, supporting the annual production of more than 1 billion gallons of biodiesel in the second half of the projection period.