USDA Holds Tight on Corn-for-Ethanol Usage, but Gro Expects Demand to Rise

The USDA in its December WASDE report left unchanged its forecast of 2021/22 corn usage for manufacturing ethanol. But Gro expects corn usage will exceed the USDA estimate because of recent ethanol production strength and additional demand to fulfill new gasoline blending mandates. 

Gro’s current forecast of corn usage for ethanol this marketing year is 5.294 billion bushels, nearly 50 million bushels greater than the USDA’s projection. In addition, corn demand for ethanol could potentially increase an additional 500 million bushels, based on this week’s EPA announcement that raises the conventional ethanol blending quota in gasoline to 15 billion gallons. 

Gro’s forecast of corn usage for ethanol is based on a regression analysis of the pace of ethanol production so far this year against the historical pace of production for the same time periods in prior years. Ethanol production in the latest week was at a near-record 1.090 million barrels per day. Production has more than doubled since the COVID-induced low levels of April 2020. High demand also has drawn down ethanol inventory, which is down 10% from its summer peak.   

The December WASDE is typically a quiet report as the USDA waits to make final US corn and soybean supply adjustments in its January reports. In addition, the USDA generally doesn’t revise production estimates for South America, which is in the early stages of its growing season. Currently, rains are benefiting crops in central Brazil, but dry conditions are continuing in the south. 

The USDA also slightly increased its estimate for US ending wheat stocks, which remain at their tightest level in seven years. US wheat exports have been weak so far this season, but Gro expects export demand will pick up in the second half of the marketing year as supplies from other origins dwindle. 

Heavy rains have reduced the quality of Australia’s wheat crop, as seen via the export price differential between premium and standard wheat, and Gro’s Australia Wheat Yield Forecast Model is projecting lower overall production, as we wrote about here. In addition, Russia’s wheat export tax, which is expected to rise to $90/tonne next week, will likely make US hard wheat more competitive to the world. 

In another bullish outlook for US wheat, forecasts call for warm and dry conditions into January in the southern Plains, further depleting short moisture supplies, as reflected in Gro’s Drought Index. Gro’s US Hard Red Winter Wheat Yield Forecast Model should be followed over the winter months for a better read on the crop’s conditions. 

In early January, ahead of the USDA’s WASDE, Gro will be releasing its own “GASDE” version of the report to give Gro users an advance look at the critical data revealed at this time of year. Gro’s GASDE report relies on our extensive data analytics and forecast models, as well as our weather and climate indicators, to project yield, production, and trade flows for major crops across the globe. Gro’s estimates, coming ahead of the official WASDE report, give analysts a head start to hone their forecasts and begin to project supply/demand balances for the coming season.

A Gro analysis found that the January WASDE, which provides final US crop estimates for the season, is the most market-moving WASDE of the year.