Iowa State analyses corn use, blend wall numbers

Ethanol Producer Magazine
By Susanne Retka Schill December 06, 2011

Last year’s corn crop may have been modestly under-estimated, suggests Iowa State University’s Robert Wisner, professor emeritus and analyst with the Ag Marketing Resource Center. He analyzed corn availability for feed and ethanol and looked at potential reductions in use in the most recent AgMRC renewable energy newsletter.

The ethanol/DDGS portion of corn demand is strongly influenced by the price of gasoline, ethanol blending volume mandates, the blenders tax credit, and the price differential between gasoline and ethanol, Wisner said. The expected loss of the blenders credits at the end of the year removes one of those factors, although the mandates are expected to remain. “When corn supplies are extremely tight, the mandates create a perfectly price-inelastic demand for corn used by ethanol plants -- at certain minimum volumes. In other words, the amount of corn used for ethanol becomes insensitive to corn prices. At plentiful corn supplies and lower prices, the ethanol industry tends to produce ethanol above mandated levels if infrastructure permits it. If corn supplies become tight, the motor fuel industry is required to blend the mandated volumes of ethanol into gasoline, paying whatever price is needed to obtain the ethanol. This, in turn, would allow ethanol processors to pay whatever price is needed to obtain the required volume of corn for mandated ethanol blending.

Read more