Current and Historic Analysis of U.S. Ethanol and DDGS Trade

        Iowa Grain Quality Initiative Logo
Decision Innovation Solutions Logo

Decision Innovation Solutions
3315 109th Street, Suite B
Urbandale, IA 50322
http://www.decision-innovation.com/

 

U.S. Ethanol Trade

Based on the latest U.S. Bioenergy Statistics monthly data from USDA-ERS (USDA-ERS, 2016), U.S. ethanol production in December 2015 was 1.3 billion gallons, increasing 5% from the previous month and about 1% from a year ago. U.S. domestic ethanol production during 2015 reached a volume of 14.8 billion gallons (see Figure 1), rising 3.4% from the same period last year.   

The U.S. exported 844.3 million gallons of ethanol in 2015, or 5.7% of last year’s total ethanol production. Compared with the previous year’s exports, 2015 ethanol exports declined slightly (0.2%), and despite recovering from the low levels in 2012 and 2013, U.S. ethanol exports remained 29% below the record level in 2011. U.S. imports of ethanol, on the other hand, increased 22.6%, to 91.5 million gallons year over year, with 96.2% of total U.S. ethanol imports coming from Brazil. The remaining 3.8% of ethanol imports came from Canada. As Figure 2 indicates, in 2015 the U.S. continued as a net exporter of ethanol, with a trade balance of 752.8 million gallons.

U.S. Annual Ethanol Production

Figure 1. U.S. Annual Ethanol Production (Million Gallons)
U.S. Annual Exports and Imports
Figure 2. U.S. Annual Ethanol Exports and Imports

Canada is the largest importer of U.S. ethanol. The volume of exports to Canada has varied from 119.4 million gallons in 2010 to 335.4 million gallons in 2014. Canada imported 249.3 million gallons of ethanol during 2015, or 29.5% of U.S. ethanol exports during that period. However, exports to Canada declined 25.7% during 2015 compared with 2014 levels. Besides a strong U.S. dollar, Canada’s lower rates of discretionary ethanol blending (on average 5%) in 2015 (USDA-FAS, 2015a) may have triggered lower imports of U.S. ethanol during 2015.

Another important destination for U.S. ethanol is Brazil. Exports to Brazil during 2015 represented 13.8% (116.3 million gallons) of total U.S. ethanol exports during that period. Exports to Brazil grew 4.7% last year relative to the volume exported in 2014 (111.1 million gallons). According to a Global Agricultural Information Network (GAIN) report published by USDA-FAS (2015b), in March 2015 Brazil’s government approved a 2% increase in ethanol blending for gasoline, from 25% to 27%, which may have stimulated the increase in imports of U.S. ethanol.

U.S. ethanol exports to the European Union (EU) have declined substantially since 2013 because of anti-dumping duties that were put in place during that year. From 2010 to 2012, on average, 25.4% of U.S. ethanol exports were shipped to the EU, whereas from 2013 to 2014 only 5.1% of U.S. ethanol exports were dispatched to the EU. In 2015, U.S. ethanol exports to the EU (40.2 million gallons) fell 19.4% year over year, representing again 5.1% of the U.S. ethanol exports during 2015.      

In addition, U.S. ethanol exports are being sent to a wider range of markets. For instance, in 2015 the Philippines and Korea imported 8.5% (71.6 million gallons) and 7.1% (59.6 million gallons), respectively, of the total U.S. ethanol exports during that period (see Figure 3). At the same time, India imported 5.6% (47.0 million gallons) of U.S. ethanol exports during 2015. Ethanol exports to China increased from 3.4 million gallons in 2014 to 70.5 million gallons in 2015. U.S. ethanol exports to China represented 8.3% of total U.S. ethanol exports during 2015. According to a USDA news release (USDA, 2015), a 2014 trade mission to China has been credited for the substantial increase in U.S. ethanol exports to that country last year.

U.S. Ethanol Exports by Destination

Figure 3. U.S. Ethanol Exports by Destination (2015)

After the Environmental Protection Agency (EPA) finalized the rule determining the Renewable Fuel Standard (RFS) volumes for 2014 through 2016, the U.S. Energy Information Administration (EIA) used the finalized volumes to develop the current short-term estimate forecast (EIA, 2016). EIA’s March 2015 forecast indicates that the average daily production of ethanol will average 0.98 million barrels per day during 2016 compared with 0.97 million barrels per day in 2015. The production forecast for 2017 indicates a level of 0.97 million barrels per day. The latest EIA ethanol consumption forecast for 2016 and 2017 indicates a volume of 0.93 and 0.92 million barrels per day, respectively. With these levels of ethanol consumption, the ethanol share of the total gasoline demand will average 10.0% in 2016 and 2017. According to EIA, no significant increases should be expected in E15 and E85 consumption in 2016 and 2017.

U.S. Distillers Dried Grains with Solubles (DDGS) Exports

U.S. DDGS exports, the main co-product from ethanol production, increased 66%, from about 4 million metric tons (MMT) in 2007/08 to 11.5 MMT in 2014/15. DDGS U.S. exports in 2014/15 comprised 32% of the annual DDGS production (36.1 million MT). The expansion of DDGS exports has been propelled by imports to China, the largest importer of U.S. DDGS (see Figure 4). China’s increasing meat consumption and the transition from backyard livestock production to livestock commercial operations have contributed to the growth of China’s demand for DDGS for animal feed (USDA-ERS, 2012a).

In 2014/15 China imported 5.25 MMT of U.S. DDGS, representing 45.5% of total U.S. DDGS exports. Exports to China, however, declined 15% from the record high of 6.2 MMT during the previous marketing year. As indicated by USDA-ERS (USDA-ERS, 2012b), Chinese demand for U.S. DDGS is influenced by several factors, including the price of corn, Chinese policy, and the accessibility and price of substitute feed ingredients.

A Global Agricultural Information Network (GAIN) report published by USDA-FAS (USDA-FAS, 2015c) indicated that on December 15, 2015, the U.S. Embassy in Beijing was notified by the Ministry of Commerce (MOFCOM) that it had formally accepted petitions from Chinese DDGS producers for an antidumping (AD) and countervailing duty (CVD) investigation against DDGS coming from the U.S. This case pertains to products with tariff code 23033000 (brewing or distilling dregs and waste). The report also mentioned that a previous AD case filed by China in late 2010 and later dropped in 2012 reduced U.S. DDGS exports to China but did not stop trade. As shown in Figure 4, U.S. DDGS exports to China declined from 2.18 MMT in 2009/10 to 1.59 MMT in 2010/11.

Another important market for U.S. DDGS is Mexico. Exports to Mexico have fluctuated from 1.00 MMT in 2007/08 to 1.82 MMT in 2010/11. In 2014/15, U.S. DDGS exports to Mexico increased 6%, to 1.59 MMT year over year, and represented 13.8% of total 2014/15 U.S. DDGS exports. Other destinations for U.S. DDGS in 2014/15 were South Korea (0.63 MMT), Vietnam (0.56 MMT), and Canada (0.55 MMT).  

U.S. DDGS Exports by selected destinations

Figure 4. U.S. DDGS Exports by Selected Destinations

In summary, three reasons point to constrained growth in the ethanol industry:

  1. Domestic ethanol consumption is mainly in the form of low blends with gasoline (gasoline blend with up to 10% ethanol).
  2. No substantial growth is expected in the short run in the consumption of E15 and E85.
  3. The potential for ethanol export expansion to Canada, the main market for U.S. ethanol, seems constrained in 2016 because of lower rates of discretionary ethanol blending in that country.

In light of the above three points, continuing U.S. ethanol export diversification to different international markets is crucial to the growth of the U.S. ethanol industry.       

The future of U.S. DDGS export expansion depends on China’s demand for DDGS, as almost half of U.S. exports are shipped to that market. Chinese import policies, corn prices, and the availability and price of substitute feed ingredients are all factors that will determine the outlook of U.S. DDGS exports to China. The recently accepted petitions by MOFCOM from Chinese DDGS producers for an AD and CVD investigation against DDGS from the U.S. may dampen U.S. DDGS exports in the 2015/16 marketing year.

We always look forward to your helpful comments and suggestions. Send them to patricia@decision-innovation.com

References:

EIA (U.S. Energy Information Administration) 2016, Short-Term Energy Outlook Report (March 2016).
USDA (U.S. Department of Agriculture), 2015, News Release: “USDA Trade Mission Spurs Record Ethanol Exports to China.” December 30, 2015.
USDA-ERS (U.S. Department of Agriculture, Economic Research Service) (2012a), Amber Waves report: “A Market for U.S. Distillers Dried Grains Emerges in China.” December 2012, Vol. 10, issue 4.
“China’s Market for Distillers Dried Grains and the Key Influences on Its Longer Run Potential.” August 2012, FDS-12g-01.
2016, U.S. Bioenergy Statistics
USDA-FAS (U.S. Department of Agriculture, Foreign Agricultural Service) 2015a, Global Agricultural Information Network (GAIN) Report: “Canada Biofuels Annual 2015.” August 2015.
2015c, Global Agricultural Information Network (GAIN) Report: “MOFCOM Officially Accepts AD CVD Petition Against U.S. DDGS.” December 15, 2015.