(The author is a Reuters market analyst. The views expressed are his own.)
By Gerard Wynn
LONDON Aug 8 The U.S. ethanol industry is right to complain that its consumption of corn is routinely exaggerated, by opponents of biofuel and in wider commentary, but it still consumes enough to make a minimum blending mandate look vulnerable.
A U.S. drought and shrinking corn yields have thrown a focus once more on the role of biofuels, four years after a rise in grain prices led to a food-versus-fuel debate and riots in developing countries.
U.S. ethanol is the world's main biofuel, at more than twice the production of Brazilian sugar ethanol.
The drought has driven livestock groups and food manufacturers to call for a suspension of the blending mandate, but the ethanol industry's corn consumption is exaggerated.
It has now become ubiquitous to quote the ethanol industry's corn consumption at 40 percent of the national crop.
But the estimate is inaccurate, by assuming away ethanol co-products and in particular so-called "distillers grains" which substitute for corn in animal feed.
The problem has arisen partly because the U.S. Department of Agriculture (USDA) fails to distinguish between ethanol and distillers grains in its headline statistics on corn consumption.
Distillers grains now equal about a third of corn's contribution to animal feed, reflecting massive growth in the ethanol industry.
The good news for the ethanol industry is that its net corn consumption is far smaller than the apocryphal 40 percent figure. The bad news is it is still an eye-watering 28 percent or so of the national crop.
U.S. corn production was 12,358 million bushels last year, with the ethanol industry consuming some 5,050 million bushels, implying a total crop consumption of 41 percent.
The majority of ethanol production is through a dry-mill process which for every bushel of corn (56 lb) produces 2.6 to 2.8 gallons of ethanol, plus about 17.5 lb of dried distiller's grains with solubles (DDGS), according to a report from the USDA's Economic Research Service.
A pro rata attribution by weight implies ethanol accounts for a little more than two thirds of corn consumed by that process.
Applied to last year's corn production, that implies ethanol's net consumption at 3,472 million bushels, or 28 percent of the national crop.
Other calculations vary: the Agricultural Marketing Resource Center (AgMRC), a USDA-funded network of academics, estimates the percentage corn consumption of ethanol at about 31 percent last year, net of co-products, while the U.S. Renewable Fuels Association (RFA) quotes a much smaller 23 percent.
The RFA's numbers seem to apply to crop supply, which includes carryover stocks and therefore a bigger number not representative of ethanol's share of crop production.
Ethanol's corn consumption is big, however it is calculated.
Using the 28 percent figure, net corn consumption last year was three times the carryover stocks at the start of the season, underlining how ethanol can exacerbate a tight market.
And illustrating the speed of growth, last year's net corn consumption was two thirds again higher than four years ago, when it consumed a net 16 percent of the crop.
Ethanol co-products for use in animal feed industry are created by wet-mill and dry-mill corn plants.
Wet-mill plants use an intensive process to separate different parts of a corn kernel to produce syrups, ethanol, corn-starch-based plastics, oil, and other products. Starch is used to make ethanol, and bran and fibre to make corn gluten feed.
Dry-mill plants are designed to produce corn ethanol, and have been at the centre of the expansion of ethanol production over the past few years.
They cook and ferment ground corn, using enzymes and yeast to produce ethanol and carbon dioxide. Once the starch is converted to alcohol, the leftover stillage is turned into distillers grains, and added waste liquid makes DDGS.
Because of the trend towards dry milling, the vast majority of co-product is DDGS, at more than 35 million tonnes two years ago, according to the Renewable Fuels Association (RFA), compared with less than 5 million tonnes of corn gluten feed.
The energy content of DDGS is on a par with feed grains like corn, and contains more protein as a result of concentration during the milling process.
A bushel of corn comprises 80 percent digestible nutrients while dried distiller's grains contain some 82 percent digestible nutrients, and corn gluten feed around 75 percent digestible nutrients, according to the report from USDA's Economic Research Service, titled "Ethanol Co-Product Use in U.S. Cattle Feeding".
DDGS contains around three times more protein, fat and fibre than corn, according to RFA calculations.
There are obstacles to substitution for corn: the co-product is more moist, which can reduce the shelf life and adds to the weight of shipment. As a result, the most consistent customers for ethanol co-products are larger cattle feeders near plants.
In general, however, co-products successfully substitute for corn, adding to the options available to livestock producers to improve feeding strategies, and the best balance of fibre, starch, energy and protein.
The ethanol minimum blending mandate into gasoline this year is for 13.2 billion gallons, under the country's Renewable Fuel Standard, or nearly a tenth of U.S. gasoline supply.
It is up to the Environmental Protection Agency to grant a waiver, on the basis that it is causing "severe harm" to the economy of a state, region, or the country.
In a letter to the EPA last week nearly a third of U.S. representatives called for a "meaningful nationwide adjustment", arguing higher corn prices had increased costs for livestock and poultry producers and food manufacturers by billions of dollars.
"The inevitable result will be more expensive food for Americans and consumers around the world," they wrote.
But there are many factors weighing against a mandate suspension, including: an election year where several swing states are in the corn belt; flexibility in the RFS law already allowing blenders to tap a surplus of tradable certificates instead of physical ethanol; and the fact ethanol is in demand anyway as an octane enhancer.
While a bid for a waiver may be unsuccessful, however, ethanol's massive corn consumption draws attention to a law that was never going to cut carbon emissions compared with regular gasoline, is less relevant regarding energy security as Dakota shale oil production rises, and has an intuitively obvious but hard to quantify impact on food prices.
U.S. corn production is around 5,200 million bushels per year more than in the 1980s, according to the National Corn Growers Association, but about two thirds of that increase is now consumed by ethanol, against a backdrop of a growing world population and changing diets. (Reporting by Gerard Wynn; Editing by Anthony Barker)