USDA Long Term Projections: U.S. Corn and Soybean Production and Expected Usage for Biofuels
By S. Patricia Batres-Marquez
Decision Innovation Solutions, 11107 Aurora Avenue, Urbandale, IA 50322
February 28, 2017
The U.S. Department of Agriculture’s projections for the farm sector through 2026/27 were released in February 2017 (USDA-OCE, 2017). Specific assumptions about macroeconomic conditions, policy, weather, and international developments are the basis for these projections. Among the underlying assumptions were no domestic or external shocks that would impact global agricultural supply and demand, normal weather conditions with trend crop production yields, and no changes in the provisions of the Agricultural Act of 2014 (Farm Act) during the projected period. Variation in any of the assumptions can substantially affect the projections and modify the results. The 2015/16 estimates and 2016/17 projections from the USDA’s November 2016 World Agricultural Supply and Demand Estimates (WASDE) report served as the starting point in the formulation of these projections. USDA completed the macroeconomic assumptions in October 2016.
U.S. Corn Production and Ethanol Production
Projections through 2026 indicate that after a sharp decline in 2017/18, U.S. corn production will increase over the next decade. Levels are expected above 14.0 billion bushels per year, but would not surpass the 2016/17 record (15.1 billion bushels). Corn production growth during the projected period results from increasing yields during the next 10 years. Corn prices are projected to increase over the next decade but are expected to stay below prices during the last decade, resulting in lower returns and decreased plantings.
Domestic demand for U.S. corn is expected to expand continually over the next decade, mainly due to the increase in corn for feed and residual use (see Figure 1). Lower feed costs give economic incentives for expansion in the livestock sector.
Figure 1. USDA's Long Term Projections: U.S. Corn Production and Usage (Billion Bushels)
USDA biofuel projections were based on the proposed rule for the renewable fuel standard for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel for 2017, announced by the U.S. Environmental Protection Agency (EPA) on May 18, 2016. USDA indicated its biofuel projections were finished before the final renewable fuel standards were published by EPA on December 12, 2016.
U.S. corn used for ethanol production is projected to steadily increase only during the first three years of the projected period (see Figure 2). Corn for ethanol production is projected to gradually fall from 5.4 billion bushels in 2018/19 to 5.1 billion bushels per year by the end of the projected period. Under this scenario, the share of U.S. corn used for U.S. ethanol production is expected to drop from 38% in 2018/19 to 35% by 2026/27. Despite these declines, corn to produce ethanol is projected to continue to be an important component in the demand for U.S. corn. The USDA’s projected falling trend for corn use for ethanol production is based on projected declines in overall U.S. gasoline consumption that reflect higher average mileage vehicles, changing vehicle use patterns, and the 10% ethanol “blend wall.” USDA’s projections consider most gasoline in the United States remains at 10% blend, with infrastructural and other constraints limiting growth in higher gasoline-ethanol blend markets such as E15 (15% ethanol blend) and E85 (85% ethanol blend).
Using a conversion factor of 2.8 gallons of ethanol per bushel of corn, U.S. ethanol production was estimated based on USDA’s baseline projected U.S. corn use for ethanol during the next decade. Under these assumptions, Figure 2 indicates ethanol production would reach the highest volume of the decade in 2018/19 at 14.98 billion gallons, not including denaturant, (5.35 billion bushels of corn convert to 14.98 billion gallons of ethanol). With the projected baseline indicating declining corn use for ethanol, production is estimated at 14.35 billion gallons (5.13 billion bushels of corn convert to 14.35 billion gallons of ethanol) by 2026/27. As ethanol production falls over the next decade, production of distillers dried grains with solubles (DDGS), a co-product of dry mill ethanol production, also is expected to decline, supporting the growth of corn used as feed ingredient. Under this scenario, DDGS production would drop from 36.9 million metric tons in 2018/19 to 35.4 million metric tons in 2026/2027. DDGS production was estimated assuming a bushel of corn produces 17 pounds of DDGS and 89.5% of corn used to produced ethanol is processed in dry mill ethanol plants(1).
Although USDA projects some gains in U.S. ethanol exports, these will not outpace declining ethanol use in the domestic market.
Figure 2. Long Term Projections: Production of U.S. Ethanol and U.S. Distillers Dried Grains
U.S. Soybean Production and Soybean based Biodiesel Production
Gradually rising prices and improved producer returns support increased soybean planting to about 85 million acres over the projected period. Soybean production is projected to slowly recover from 4.05 billion bushels in 2017/18 to 4.40 billion bushels in 2026/27 (see Figure 3). Expected low feed prices, growing livestock production, and continued demand by foreign importers provides incentives for higher demand for soybean meal and oil, and therefore crush, over the next decade.
Figure 3. USDA's Long Term Projections: U.S. Soybean Production and U.S. Soybean Oil
U.S. soybean oil to produce biodiesel (methyl esters) is projected to grow to 6.35 billion pounds starting in 2021/22 and to continue at that level to the end of the projected period (see Figure 3). These projections assumed a tax credit for blending biodiesel ($1/gallon) is not available. According to USDA, these projections indicate an increasing biomass-based diesel use requirement under the Renewable Fuel Standard (RFS). The projections assumed some demand for biodiesel and renewable diesel to meet a portion of the RFS’s advanced biofuel requirement. Projections assume biomass-based diesel requirements at the 2017 volume of 2 billion gallons (EPA, 2015). Under this scenario, this volume requirement remains for the rest of the projected period. Although in smaller quantities, other feedstock used to produce biomass-based diesel include corn oil from distillers grains, recycled vegetable oils, and animal fats.
Based on these projections, annual soybean oil based biodiesel production was estimated. A conversion factor of 7.55 pounds of soybean oil per gallon of biodiesel was used in these estimates. As Figure 4 indicates, soybean oil based biodiesel is expected to grow from 808 million gallons in 2017/18 to 841 million gallons by 2021/22 and later years
Figure 4. Long Term Projection: U.S. Biodiesel Production (Soybean Oil Based)
Considerations and Updates
As indicated by USDA, the long-term projections give a neutral reference scenario that can be used as a point of departure for discussion of alternative farm-sector outcomes using different domestic or international circumstances. This is particularly important to consider since these projections were formulated before new data was available that may supersede some of the projections contained in the baseline projections.
For example, on January 12, 2017, the USDA released final estimates of the 2016 U.S. corn and soybean crops (USDA-NASS, 2017). The final estimates indicate 15.148 billion bushels for corn production and 4.307 billion bushels for soybean production (see Table 1). For both corn and soybean production, final estimates were down about 1% from the November forecast of 15.226 billion bushels for corn and 4.361 billion bushels for soybean that were used in these projections. Both crop productions still are at record levels. Also, the latest USDA’s WASDE report (February 2017) projection for 2016/17 for corn used to produce ethanol of 5,350 million bushels differs by 50 million bushels from the baseline projection for 2016/17 of 5,300 million bushels. The increase is based on the most recent data from the USDA’s Grain Crushings and Co-Products Production report and the Energy Information Administration (EIA) data, which indicate strong weekly ethanol production during January. 2016/17 soybean oil used to produce methyl ester (biodiesel), was increased by 250 million pounds to 6.2 billion based on EPA’s Renewable Fuel Standard for 2017 and the Biomass-Based Diesel Volume for 2018 (EPA, 2016a).
Table 1. Long-Term Projections vs New Data (Selected Variables)
In addition, the final 2017 renewable fuel volume requirement was set at 19.28 billion gallons (EPA, 2016a), compared with the May 2016 proposed standard of 18.8 billion gallons (EPA, 2016b) used in these projections. The conventional biofuel requirement for 2017 is 15.0 billion in contrast to the proposed volume in May of 14.8 billion gallons. The 2017 biomass-based diesel requirement was set at 2 billion gallons in the EPA’s final rule (EPA, 2015). Projections assume this volume requirement to remain throughout the remainder of the projection period. However, for 2018, this requirement was raised to 2.1 billion gallons as published in the December 12, 2016 final rule. Due to timing, the projections were formulated using the proposed volumes, not final volumes.
USDA updates the 10-year projections every year and publishes these each February.
(1) According to USDA-NASS’s Grain Crushings and Co-Products Production report, from July 2015 to January 2017, on average, 89.5% of corn used to produce ethanol was processed in dry mill ethanol plants, with the remainder 10.4% processed in wet mill ethanol plants. These percentages were assumed for the projected period.
EPA (U.S. Environmental Protection Agency), 2015. Renewable Fuel Standard Program:Standards for 2014, 2015, and 2016 and Biomass-Based Diesel Volume for 2017
EPA, 2016a. Final Renewable Fuel Standards for 2017, and the Biomass-Based Diesel Volume for 2018.
EPA, 2016b. Proposed Renewable Fuel Standards for 2017, and the Biomass-Based Diesel Volume for 2018. May.
USDA-OCE (U.S. Department of Agriculture), 2017a. USDA Agricultural Projections to 2026. February.
USDA-NASS (National Agricultural Statistics Service). 2017. Crop Production Annual Summary. January.