Possible corn shortfall effect on ethanol prices unclear

National corn stockpiles will hit the largest disparity in production projections and actual supply since 1973 as a result of this summer’s drought, according to a Bloomberg report.

Global corn demand has never been higher while output has strained under the heat and lack of rain. That means U.S. corn supplies will hit 1.216 billion bushels on Sept. 1, 2013, about 35 percent less than the Agriculture Department’s (USDA) June 12 estimates, the Bloomberg report said.

USDA could not comment on the report ahead of the figures, including possibly revised predictions, it plans to release Wednesday, a USDA official told The Hill on Monday.

It is unclear what kind of effect those stocks would have on biofuel prices such as ethanol.

The cost of biofuels has been a contentious point of late, with lawmakers from both parties criticizing the U.S. Navy’s “Great Green Fleet” aircraft carrier strike group for using a $26-per-gallon biofuel and petroleum mixture to power its six-week naval exercise in the Pacific Rim.

The Obama administration has stood firmly behind biofuels. The White House, along with the Navy and Agriculture and Energy departments, last week announced $62 million in new funding for biofuels research and development and bio-refineries.

On the one hand, an increase in the price of the commodity used to make ethanol fuel would presumably raise its price. Corn prices have risen 37 percent in three weeks and could jump another 9.9 percent by December to hit a near-record $8 per bushel, the Bloomberg report said, citing an analysis by Rabobank International.

But with about 1 billion gallons of ethanol on the market, “by historic measures, stocks are heavy” and should cover summer demand, Matt Hartwig, spokesman for the Renewable Fuels Association, said Monday in an email. Ethanol producers lowered production for the past several weeks, with last week registering as the year’s lowest level of production and hitting 10 percent below January output.

The ethanol industry also should hit its renewable fuel standard target of 13.2 billion gallons, with the Energy Information Administration showing annualized production reaching 13.9 billion gallons.

Ethanol pricing "remains somewhat independent" from corn stocks because they are considered more energy than agricultural commodity, Nathan Fields, director of biotechnology and economic analysis, told The Hill on Monday. Though corn prices will likely rise, ethanol might be insulated, he said.

"Ethanol exists much more closely tied to the energy markets, much more than the agricultural commodities markets," Fields said. "It's priced against gasoline."

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