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The US Ethanol Market – A quick synopsis

20 Jan

US ethanol exports reach highest level in more than two decades:

In November, the US exported 152.5 mil gallons of ethanol, the largest monthly volume in more than 20 years. Between January and November 2011, the US exported 1.02 billion gallons of ethanol.

This export volume over 11 months is more than 2.5x the export volume from the entirety of 2010 and about 6.0x higher than the previous five full-year average export levels. The top importers of US ethanol in the first 11 months of 2011 include Brazil, which imported about one-third of US exports, followed by Canada (26%), the Netherlands (12%), and the United Kingdom (9

%). Ethanol exports likely accounted for 7% to 9% of total US ethanol production in 2011.

How much ethanol will the US be able to export in 2012? Taking into account increased US ethanol production capacity for 2012 (+8.1%y/y) and higher 2012 Renewable Fuel Standard (RFS2) mandate levels for blending in the US, we estimate US ethanol exports could be as high as 1.4 billion gallons in 2012. Our assumptions are based on the following. Weekly EIA data show that as of December 30, 2011, the US had ethanol stocks of 753.7 mil gal.

According to the Renewable Fuels Association, as of January 10, 2012, 14.2 bil gal of ethanol production in the US are operational (with a nameplate capacity of 14.7 bil gal). We assume that, on average, ethanol capacity utilization in 2012 will be 96%, implying production of about 14.1 bil gal. The new RFS2 rules mandate blending of 2.0 bil gal of ethanol-equivalent volumes of advanced biofuels into the US fuel supply— about 75% of this volume will need to be met with biomass-based biodiesel.

We forecasted earlier that most of the remaining 490 mil gal of ethanol-equivalent volume necessary to meet the advanced biofuel requirement will likely come from imports of sugarcane-based ethanol (mostly from Brazil). If we assume higher US ethanol imports from Brazil, it would not be surprising to see total US ethanol imports exceed 500 mil gal in 2012. To put this in perspective, between January and November 2011, the US imported 240 mil gal.

In summary, US ethanol supplies in 2012 could reach 15.4 bil gal. RFS2 mandates that a minimum of 13.2 bil gal of ethanol be used to meet the annual blending requirements. Allowing for a roughly unchanged ending stock level of 750 mil gal implies that about 1.4 bil gal would be available for export. This figure is likely an upper bound for US ethanol exports in 2012—it hinges upon strong capacity utilization and a minimum level of discretionary blending above the mandated levels.

Most likely, some level of discretionary blending and domestic stock building will keep US ethanol exports below 1.4 bil gal, but still well above 2011 levels. We estimate about 25% of available ethanol exports will be shipped to Brazil. It is unlikely that Brazil’s sugar production will increase significantly from 2011/12 harvest levels, making an ethanol exchange between the US and Brazil necessary in order for both countries to maintain their respective blending mandates, especially as Brazil has recently extended its zero-tariff policy on ethanol imports until December 31, 2015.

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