The USDA's Foreign Agricultural Service recently released Canada Biofuels Annual 2016 report which shows one less plant in operation in Canada for a total of 14 plants, although 2016 production is estimated to achieve a level which is 1.4% higher than seen in 2015 at 1750 million liters. The existing 14 plants are expected to produce at capacity, while increased efficiencies in the plants are expected to lead to the higher production.
Current estimates indicate that 77% of the feedstock used is corn, utilized at the Manitoba, Ontario and Quebec plants. The other 23% utilized in Saskatchewan and Alberta is wheat. While the study is expecting larger supplies of feed wheat available on the Prairies this year, huge supplies of U.S. corn, given the expected record crop combined with the approximate 10% ethanol yield advantage of corn over wheat, may pressure wheat prices over the upcoming crop year. Today's social media reports of sub-$2/bushel cash corn in a South Dakota location will surely result in added pressure on feed markets on the Prairies.
As seen on the attached chart, increased efficiencies within Canada's 14 plants, one less than last year, are expected to trim corn demand for fuel ethanol by 125,000 metric tons to 3.250 million metric tons, the first year-over-year drop in demand seen in three years. While wheat demand is estimated to be steady at 1 mmt over the past three years, usage is trimmed by 50,000 mt to 950,000 mt in 2016 for the same reason. A very similar demand picture is provided for 2017.
The Canadian industry is expected to blend a lower volume of ethanol into gasoline in 2016, given a lower expected inclusion rate. In 2014 and 2015, the USDA reports that gasoline sold contained 6.3% ethanol on average. While gasoline demand is estimated higher in 2016 due to its lower cost, the inclusion rate is estimated to fall to 6% given the lower price of oil and increased costs of imports needed to meet higher blend rates due to the weak Canadian currency. This has no bearing on Canadian production, but rather, is a focus of the USDA due to a declining interest in ethanol imports from the United States.
While there remains a great deal of uncertainty surrounding the moves to be made by both the federal government and the provinces as they craft their greenhouse gas reduction initiatives, the USDA reports that there is little on the radar that will have "a profound impact on biofuel demand or production."
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Cliff Jamieson can be reached at firstname.lastname@example.org
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