The following is a brief analysis by Krista Swanson, the lead economist for the National Corn Growers Association.
Projected corn ethanol use for the 2022/23 marketing year declined by 25 million bushels from last month, according to this week’s UDSA World Agriculture Supply & Demand Estimates report. As the only change on the supply or demand side of the corn balance sheet, it resulted in a corresponding increase of 25 million bushels in projected corn ending stocks for the current marketing year.
Despite a return to the post-COVID normal in 2022, fuel ethanol produced using corn trailed the years leading up to the 2020 COVID disruptions. From 2017 to 2019, the average annual fuel ethanol production was 15.9 billion gallons, calculated using data from the U.S Energy Information Administration (EIA). After dropping to 13.9 billion gallons in 2020 and recovering to 15.0 billion gallons in 2021, production in 2022 was 15.4 billion gallons. This is 88% of the 17.4 billion gallon per year total of U.S. ethanol production capacity.
The EIA Short-Term Energy Outlook, released earlier this week, projects a 2023 fuel ethanol production of 15.2 billion gallons, a 1% decline from 2022. Though not a significant reduction from 2022, the sector is falling about 5% short of the pre-COVID production levels.
Among the factors that impact ethanol production are motor gas consumption and ethanol blend rate.
Motor Gas Consumption – Motor gas consumption fell to 123.4 billion gallons in 2020, a 13.7% decline from the 2017 to 2019 annual average of 142.9 billion gallons. Consumption improved to 135.1 billion gallons in 2021 before falling to 134.6 billion gallons in 2022. The EIA outlook projects further decline in motor gasoline consumption in 2023 and again in 2024, dropping to 133.8 billion gallons. Statistics from the U.S. Department of Transportation shows that vehicle traffic volume for 2022 was back to pre-COVID levels, indicating that miles driven is not a factor in lower ethanol use. An increase in vehicle fuel efficiency or increasing adoption of hybrid or electric vehicles may be contributing factors now and into future years. Given ethanol is an input in motor gasoline, the decline in motor gas consumption is another factor in declining ethanol use.
Ethanol Blend Rate – The ethanol blend rate, the amount of ethanol blended relative to the amount of motor gasoline consumed, has moved incrementally higher annually but still would round to 10% for the past decade. This is not surprising given nearly all gas sold in the U.S. contains 10% ethanol. Higher blends such as E15, marketed as UNL88 and E85, are available in various markets across the U.S. Expansion of and availability of higher ethanol blends is needed to break through this 10% blend wall.
The capacity for greater corn ethanol production is already available, and the U.S. could be using more of it. Corn ethanol is an immediate climate change solution as a low-carbon, clean energy source and an affordable, homegrown fuel. Corn ethanol is uniquely positioned to play a larger role in the future of transportation fuels. Last year, the Next Generation Fuels Act was introduced in the House and Senate, which would remove barriers to blends of ethanol up to 30%.