AGRICULTURE
Figure 5: Exports Providing Incremental Demand
100 200 300 400 500
0 2005 2006 2007 2008 2009 2010
2011 YTD
Sources: US Census Bureau, USDA, Morgan Stanley Commodity Research
US Ethanol Keeping a Bid Under Corn With oil prices elevated, the ethanol
industry has enjoyed a period of sustained profitability, encouraging
US Ethanol Exports, Million gallons
discretionary ethanol blending and incremental corn demand. Even with the removal of a $0.45/gal blenders tax credit in the US, the incentive to blend on a discretionary basis is pronounced all the way up to $8.50/bu corn. Above that level, the incentive to blend is reduced, though demand substitution away from ethanol is likely to be slowed by frictions in the gasoline supply chain. Corn ethanol has received additional support this year from a shortage of sugarcane-based ethanol exports from Brazil, where surging domestic demand and poor sugarcane production have materially tightened the ethanol balance. This tightness, in addition to a strong Brazilian Real, has made US ethanol exports comparatively cheap for European consumers.
Year to date through June, the US has exported 461.2 mn
gal of ethanol, more than the entire volume exported in 2010. Incremental demand both from the domestic and export market should result in US ethanol production of just over 13.6 bn gal (4.95 bln bu of corn) in 2011.
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