Canada Markets

The Canada Biofuels Annual 2014 report has recently been released, which is produced by the USDA Foreign Agricultural Service. While there has been much written about the delays within the Energy Protection Agency in the United States in releasing the 2014 Renewable Fuel Standards which sets the mandate for blending ethanol into gasoline, this report serves as a reminder that Canada is faced with many of the same concerns and uncertainty.

The Canadian ethanol industry has failed to reach the size needed to meet the country's current blend mandate of 5%, given a stabilizing of production capacity since 2012; therefore, the industry continues to rely heavily on ethanol imports to meet the mandate. While ethanol fuel production has increased 336% between 2006 and 2014 to 1.745 billion liters according to USDA data, demand or market penetration of fuel ethanol has increased 707% to 3.106 billion liters in the same time period.

At the same time, Canada's production capacity stalled in 2010 and is reported to have fallen 1% since that year to 1.8 billion liters. This is a problem that will not be easily addressed, given that federal and provincial incentives will be phased out over the next three years while the industry seeks a replacement program.

Despite the high volume of imports required to meet Canada's fuel ethanol mandate, the USDA reports that the actual blend exceeds the 5% mandate. Data suggests that Canada's fuel supply contained a 7.1% blend in 2014, which is expected to dip only slightly to 7% in 2015. By volume, Canada's fuel ethanol mandate is roughly 2.2 billion liters, while the 2014 estimate suggests 3.1 billion liters of ethanol will be blended into the fuel supply. The rationale is simply the product's cost competitiveness with gasoline.

The attached chart indicates the feedstock usage for both corn (red line) and wheat (blue line) in Canada, while the green line represents the canola usage in biodiesel production for comparison purposes. Estimates suggest that 77% of the Canadian production is generated through the use of corn, while the balance is wheat. The industry's maturity points towards a usage of 1 million metric tonnes of wheat used in 2014, which is expected to remain steady in 2015. Corn usage is also expected to remain steady over 2014 and 2015 at 3.250 mmt.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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