For years, larger and larger sales of corn ethanol were almost a given. For one thing, the Renewable Fuel Standard guaranteed biofuels a share of the gasoline market, and car-happy Americans used more gasoline every year. The joyride may be ending, with gasoline consumption plateauing in 2017 and 2018 and projected to fall in the decade ahead, says economist Scott Irwin of the University of Illinois.
The impact would be felt at the farm level. Some 38 percent of the U.S. corn crop — in 2018, 5.5 billion bushels — is used in making ethanol. If gasoline consumption drops 18 percent by 2030, as projected by a DOE agency, the market for corn for ethanol could shrink by 930 million bushels, wrote Irwin at the farmdoc daily blog. The perennial fights between the oil industry and ethanol makers over the RFS could intensify as the gasoline market shrinks.
“The important message is I don’t see any scenarios that I find realistic that gasoline consumption in the United States increases,” said Irwin during a broadcast interview. “I think the real debate is how fast it declines.”
For his analysis, Irwin used data from an Energy Information Administration baseline that projects a 26 percent decline in gasoline consumption from 2018 to 2050. Irwin focused on projections up to 2030, when gasoline consumption is predicted to be 117 billion gallons, compared with 143 billion gallons last year. Consumption was steady in 2017 and 2018 despite low petroleum prices and a strong U.S. economy, factors usually associated with rising gasoline use.
“The flat-lining … may be an early warning sign of a long-term systemic decline in gasoline demand that is just beginning,” said Irwin. “This, of course, has momentous implications for domestic U.S. ethanol consumption assuming it continues to be tied to E10 blends.” Traditionally, gasoline includes a 10 percent blend of ethanol. President Trump has vowed to change EPA rules this spring to allow year-round sale of E15, a 15 percent blend.
There are options for mitigating declining gasoline sales, said Irwin during the broadcast interview, including increased ethanol exports, now an outlet for 11 percent of ethanol production. And for corn farmers, fewer bushels sold for conversion to ethanol would mean less competition from distillers dried grains, an ethanol co-product used as livestock feed. In that scenario, the potential loss of 930 million bushels would become a net sales loss of 650 million bushels.
Farmers say they will plant more corn this year — a total of 92.8 million acres compared with 89.1 million acres last year — in the belief it will be more profitable than soybeans. One of Irwin’s colleagues at the University of Illinois, Todd Hubbs, says cold and wet weather could continue to inhibit planting, though that’s not certain. “A significant switch away from corn acres or a production shortfall seems necessary to move corn prices higher,” he wrote. Sluggish exports and ample supplies are weighing on the market price for corn.
Blizzards and floods have slowed planting this spring in the northern Plains and the western Corn Belt. The weekly Crop Progress report said 3 percent of this year’s corn crop was planted as of Sunday, compared with the five-year average of 5 percent for mid-April. No corn has been planted in the top two corn states; usually, Iowa has planted 2 percent and Illinois 4 percent of its corn at this point. No corn has been planted yet in Nebraska or Minnesota.
To listen to an interview of Irwin by Todd Gleason on the outlook for ethanol, click here.