Lower gas prices = more driving = more ethanol needed

Source:  By Dave Hinton, The News-Gazette   • Posted: Friday, February 13, 2015

Good news at the gas pump is good news to farmers as well.

Darrel Good told those attending the Dewey Bank Annual Farm Seminar Wednesday that government projections forecast an increase of 2 percent to 3 percent in fuel use among U.S. drivers this year. That would mean more corn-based ethanol consumption.

Good said there had been some concern in the ag industry that as corn prices increased, there would be greater reluctance in the fuel industry to use the required 10 percent ethanol blend in fuel. But that hasn’t been the case, said the University of Illinois agriculture and consumer electronics professor emeritus.

“We did see that for a while,” Good said. “My point is we’ll continue to use ethanol because it is probably the cheapest source of octane for the mixture. Predominantly, now gasoline comes out of the refinery at 84 octane. By blending 10 percent ethanol, it brings the octane back up to 87.”

Other topics covered included:

— Large crop stockpiles. After several profitable years, U.S. farmers are seeing lower prices for corn, due largely to last year’s record crop, resulting in a huge surplus.

Corn prices are predicted to average $3.65 a bushel.

That’s below the level it takes for farmers to make a living.

“For central Illinois, with normal yields, the budgets I’ve seen … there’s some money to be made at $4.50 (per bushel),” Good said.

So, farmers are having to rely on cash reserves or bank on higher yields offsetting some of that lower per-bushel price.

“For many (farmers), their yields were well above average,” Good said, “so that compensated to some extent.”

Nationwide, farmers averaged corn yields of 171 bushels an acre in 2014, compared to 158 bushels an acre the year before.

Higher production, plus stocks on hand and imports project total supply of corn to hit 15.311 billion bushels in 2015-16 — a substantial jump from just two years ago.

Good said last year was the first bad year of the past five for farmers. Even in 2012, with its blistering drought, crop insurance helped to pick up the slack, he said.

He said strong prices of prior years and good yields allowed many farmers to take the opportunity to update their machinery, “and hopefully they did save some money.”

“I think for the most part farmers are still doing OK. Not as well as they were, but far from a disaster,” Good said.

“I think there is some concern that if prices stay low for an extended period of time, that can change pretty rapidly.”

— More soybean acreage. A combination of factors has prompted farmers to plant additional acreage into soybeans.

“Because it takes less money to plant soybeans, some producers will do that as a way to conserve cash,” Good said. “Until very recently, soybean prices for next year’s crop have been very attractive (compared to) corn.”

Good said soybean prices will average about $10 for the market year.

While China is not projected to import much corn (sorghum appears to be the import crop of choice for livestock feed to that country), soybean imports to China are expected to climb, Good said. Two-thirds of U.S. soybean exports go to China.

“Their appetite (for soybeans) continues to grow,” Good said. “That’s good,” he said, adding it also makes U.S. officials nervous “because that’s a lot of eggs in one basket.”

“China has never been a big importer of corn,” Good said. “Probably they got started (taking more sorghum) because of their concerns of GMO (genetically engineered) corn. They banned the import of corn for a period. The industry turned to sorghum, and it’s stayed there. It’s basically a livestock feed.”

Soybean supplies are projected to climb substantially — to 385 billion in 2015-16, up from 92 billion the year before.

The U.S. ag industry is also looking at South America, where a bumper soybean crop is forecast, Good said.