USDA Ups Corn-to-Ethanol Forecast on Rising Gasoline Demand

Source: By Spencer Kelly, OPIS • Posted: Thursday, February 12, 2015

For the second month in a row, the U.S. Agriculture Department ratcheted up its expectations for the amount of corn it expects to be devoted to ethanol production this season, pointing this time to pressure from growing fuel demand.

“U.S. feed grain ending stocks for 2014-2015 are projected lower with reductions for corn, sorghum, and barley,” USDA said in its World Agricultural Supply and Demand Estimates released today. “Corn accounts for most of the reduction with projected use in ethanol production raised 75 million bushels on higher forecast
2015 gasoline consumption by the Energy Information Administration.”

The 5.25 billion bu of corn that USDA now foresees going to ethanol plants in the 2014-2015 marketing year that ends with August is up 1.5% from its January forecast, which itself was up from December. Over the last two monthly reports, DOE has upped its forecast for corn-to-ethanol production by nearly 2%, which would put it up 2.26% when compared to USDA’s latest estimates from the previous
2013-2014 season.

The gain, however, well outpaced Morgan Stanley expectations that USDA would add only 25 million bu to the season’s use of corn for ethanol. It also already took the agency forecast beyond the 5.245 billion bu figure that Morgan Stanley predicted would be the end-of-season number from USDA.

Many analysts thought USDA fell behind the real world in its corn-to-ethanol forecasts, so a sizable increase in the latest report was not unexpected.

What is somewhat of a surprise from a USDA report that basically held most of the month-to-month corn forecast numbers unchanged is corn ending stocks for the season — down 50 million bu, or 2.7%, from the month-ago forecast and, at 1.827 billion bu, some 2.8% less than analyst outlooks that, instead, foresaw a small build.

At the same time, however, USDA also built on its global forecast and outpaced analyst expectations for worldwide stockpiles, upping ending stocks 0.24% to
189.64 million metric tons. “Global coarse grain supplies for 2014-2015 are projected 5 million tons higher mostly on higher corn production for Ukraine and Argentina and higher corn beginning stocks for South Africa, Argentina and Brazil,” explained USDA.

Meantime, USDA only tightened the projected range for corn prices this season.
The agency now expects the average farm price for corn to range from $3.40 to $3.90/bu, cinching it in by a nickel on the low and high end from last month and averaging about 18.2% cheaper than the previous year.