Progressive Ag Marketing Report with Lilja
According to data released from the Energy Information Administration, a record 10.3% of ethanol was consumed in the nations fuel supply in 2022. The Renewable Fuels Standard that originally passed in 2005 with revisions in 2007 has proven an overwhelming success. This was never more notable in 2022 when eastern Europe was plunged into turmoil and having an additional 15.0 billion gallons of supply proved critical in keeping gasoline supplies stretched and keeping gasoline prices from running an additional $2.00 to $3.00 per gallon higher than they did. There were plenty of detractors and even some of the most ardent supporters in 2005 who thought production of 15.0 billion gallons of ethanol fuel would be unattainable in a little over a decade. But a funny thing happened along the way. Ethanol production facilities became more efficient and are now producing 3.0 gallons of ethanol for every bushel of corn compared to 2.75 in the mid 2000’s timeframe. That’s an 8.4% increase in efficiency in less than 20 years.
Even more impressive, US corn production averaged around 11.0 billion bushels in the mid 2000’s and is now in the 15.0 billion bushel range, a 27% increase. Average US corn yield on a per acre basis has increased from the 145 bushels per acre range in the mid 2000’s to the 175 bu/ac range the last few years, an 18% increase. USDA is projecting a 181.5 bu/acre yield for the 2023 crop which would be a new record. The point is, in 2012 when the heart of the corn belt received a devastating drought and a lot of detractors were growing skeptical of the Renewable Fuel Standard, we had a 123.1 bu/acre final US yield. That was higher than 1995 average US yield of 113.5 bu/ac and in line with yields from the late 1990’s timeframe. A disaster crop now would be in the 145 bu/ac range which is where yields were when the RFS was written into law.
Corn and ethanol production in the United States over the last 20 years have been the text book example of supply side economics. The farmer produces 30 more bushels per acre on average. He’s willing to pay the genetic seed companies to further improve yield potential. He’s buying larger trucks and building larger bins. Elevators and ethanol plants are building more storage capacity. The farmer is also improving soil profiles through tiling practices. The machinery and computer guys have also increased efficiency in precision planting, soil mapping and harvest data, all of which the farmer is willing to pay for. Elevator terminal facilities followed suit by building out expanded rail loop capacity. Semitruck companies have been busy manufacturing more capacity for moving all this inventory. A rising tide lifts all ships.
The other funny thing that happened in the early 2000’s was full scale adaptation of electronic fuel injection into the entire US light duty motor fleet. There was this simple, cheap invention called flexible fuel sensors that spawned out of EFI. NASCAR fully adapted E-15 fuel when they switched away from carburetors to electronic fuel injection in 2011. In June of 2022, it was announced that NASCAR had raced 20 million miles on E-15 over 11 seasons. If there were any problems with E-15, you would have heard about them by now. This week, the EPA announced a proposed rule allowing summertime usage of E-15 for 8 midwestern states in 2024. There is still plenty of dissent, but for now the spread prices tell the tale with E-10 at 82 cents per gallon cheaper than E-0 and E-15 at 92 cents per gallon cheaper than E-0. As long as conflict persists in Europe these spreads should remain wide and I would anticipate that ethanol should surpass 11.0% of total US fuel supply in the next few years.
Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing’s Research Department.
Tom Lilja is an employee of Progressive who writes this column for the Times-Record.