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Demand for Ethanol could Drop

December 20, 2023

In an article that appeared in a recent agriculture newsletter from Heartland Bank, industry writer Stu Ellis tells us that, according to Farmdoc Ag Economist, “ethanol demand will drop” and “corn prices will decline as electric vehicle use expands.”

According to Ellis, “the U.S. Energy Information Administration projects the share of new vehicle sales captured by battery and hybrid electric vehicles will grow from 8% in 2021 to 21% in 2050 as consumers turn away from internal combustion engine vehicles. U.S. gasoline use is expected to decline by 4.5% between 2023 and 2037. By 2037, gasoline use will be lower than 2021 levels despite population growth that increases the demand for transportation. Only after 2037 is U.S. gasoline use expected to grow as population increases offset the declines in per-capita gasoline use.”

“If declining gasoline consumption is accompanied by relatively lower ethanol production, it will shrink corn demand and reduce prices assuming government policy allows,” Ellis adds. “We estimate corn prices would be up to 4% lower if ethanol use is proportional to expected gasoline use relative to the case where ethanol follows current EIA projections.”

Estimated impacts of lower ethanol use graph

The report continues: “Figure 3 plots our results: the estimated percentage changes in the price and quantity of U.S. corn use each year if ethanol use growth follows EIA projections for gasoline use. Results show that the corn prices impacts are larger in percentage terms than the quantity impacts since both demand and supply are assumed to be relatively inelastic and unresponsive to changes in market conditions.

“One factor not considered by the economists is the increasing volume of ethanol in a gallon of motorfuel over time”, says Dave Loos of IL Corn. Loos says higher blends of ethanol are coming, and that means ethanol content (that is) above 10 or 15%.” (2-min. video)

This article may reference and link to third party information that has been verified to the best of our abilities. There is no guarantee of accuracy. Heartland Bank does not endorse companies, services, or products referenced in its articles and is not responsible for the content, links, privacy, or security policies of these third parties. Information in the above article may include material from FarmDoc Daily website (https://farmdocdaily.illinois.edu/2022/12/the-impact-of-long-run-declines-in-gasoline-use-on-the-us-corn-market.html) and the Heartland Bank weekly Ag Newsletter.