Rumours of change to US ethanol maths 'misplaced'

Speculation that US farm officials are to adjust their ethanol manufacturing calculations, meaning less corn is needed to make every gallon, and a factor likely to depress prices, appear wide of the mark.

Agrimoney.com had heard from a number of sources that the US Department of Agriculture was to lift to 2.9 gallons per bushel of corn, from 2.7 gallons per bushel, the rate at which it calculates ethanol production.

One, Minneapolis-based Benson Quinn Commodities, part of the Archer Daniels Midland empire, said that its "Chicago office was hinting that the USDA may be considering increasing the ethanol yield".

The broker calculated that the change being speculated on in the market would mean ethanol plants using about 150 bushels less corn than the USDA is currently factoring in – a market-moving mount given the small stocks currently forecast for the close of 2011-12.

"In theory that would bring carryout stocks up to 950m bushels, which would make quite a difference," Jon Michalscheck, at Benson Quinn said.

Not on the cards

However, a well-placed US government source told Agrimoney.com that he was "not aware of any change in the previously announced conversion rate".

That could, conversely, open the potential for a downgrade to the US stocks figures, on some estimates.

Some brokers consider the current pace of ethanol production, while flagging from late 2011 levels, enough to warrant up to an extra 100m bushels of corn,above the current USDA forecast, used in making ethanol, taking the total to 5.1bn bushels.

Morgan Stanley, which has a 5.02bn-bushel estimate, earlier this week estimated the corn ethanol margin had recovered to a positive 1 cent a gallon, adding that "ethanol's call on corn should remain firm" thanks to the US production mandate and the biofuel's discount to gasoline.

Corn oil mining

Another dynamic under the spotlight in the biofuel industry is processors' increasing tendency to squeeze more corn oil - a valuable vegetable oil, with food uses - from the residues left over from ethanol production.

Several plants are, reportedly, reducing to 5%, from 10%, the level of corn oil in the so-called distillers' grains byproduct, used as an animal feed, but reducing its benefits to livestock.

"This is making distillers' grains end-users taking a look at the 'value' of that product. This can push more soymeal and wheat in to the ration for the energy value," broker FCStone said.

source: agrimoney