Ethanol/Corn Balance Sheets

AgMRC Renewable Energy Newsletter
Created July 2008

End Date December 2015


Dr. Robert WisnerRobert Wisner

Emeritus Professor                                                              
Ag Marketing Resource Center                                                                                                                                                                                           Iowa State University                                               

rwwisner@iastate.edu

 

The corn balance sheet can be thought                        View Corn Balance Sheets (pdf)
of as a commodity counter-part to a financial
balance sheet that centers on the supply and
demand for money that is available to a business, an individual, or other institution, and how much will be left after all demands for funds are met.  The financial balance sheets focus is on assets, liabilities, and net worth.  In commodities, the focus is on available supplies, various sources of demand, and carryover stocks that are left at the end of the marketing year after all demands have been met.

With the rapid expansion in the ethanol industry, the profitability of converting corn to ethanol depends heavily on available supplies and other demands for corn.  So, the interrelationship between ethanol production and corn usage greatly impacts both corn and ethanol.  Impacts of ethanol demand growth on other users of corn also depends heavily on this same information.  With the expansion in the ethanol industry and with government mandates that call for expanding production of corn-based ethanol through 2015, it is important to examine corn balance sheets and ethanol usage from a multi-year perspective.

A multi-year perspective is shown in our latest balance sheets for corn.  We will monitor supply/usage conditions and keep the corn balance sheet updated and linked on future newsletters. 

Interpreting the Current Situation

The dramatic rise in the farm price of corn from $1.50 per bushel or lower in the fall of 2005 to mid-June 2008 forward contract prices approaching $8 per bushel for summer 2009 delivery is a by-product of the rapid expansion in the biofuels industry.

Another major factor behind the price increase is the limited availability of additional U.S. cropland.  Rising foreign demand for grain and oilseed products also has contributed somewhat to higher prices, although the major factor clearly is biofuels.

Since the 2004-05 marketing year, the volume of U.S. corn processed for ethanol has increased by 1.65 billion bushels or 125%.  Our projections, which are lower than recent projections from USDA, show another 28% or 825 million bushel increase likely in the marketing year beginning September 1, 2008.  That’s a combined increase of almost 2.5 billion bushels in four years.

From 2004-05 to 2008-09, our projections show an 8.6 percent or 157 million bushel increase in U.S. corn exports and a 13% or 780 million bushel decrease in corn feed and residual use.  Nearly all of the decrease in corn feeding is projected to occur this year, because of limited availability of corn.

With no changes in biofuels and Conservation Reserve Program policies, very tight U.S. and world corn supplies would appear likely for the next few years.  At the same time, demand for additional cropland for corn is likely to keep soybean supplies tight.  The balance sheets let you see the details on how corn supplies and demands are changing.  They also show the potential impact on supplies (carryover stocks) remaining at the end of the marketing year, and on prices under a range of alternative crop yields.