Canada Markets

A Look at USDA's Canadian Ethanol Data

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Data from USDA's Canada: Biofuels Annual report forecasts Canada's gasoline use falling for a second straight year in 2019 (not shown), while ethanol production (blue bars) is up for a second year and consumption (grey bars) is forecast higher on an annual basis. Ethanol imports are forecast to fall for the second straight year (brown bars) while Canadian plant production as a percentage of capacity is forecast to fall for a third year (black line) as measured against the secondary vertical axis. (DTN graphic by Cliff Jamieson)

The ethanol industry is facing challenges and weekly data in the U.S. doesn't help. Despite seven consecutive weeks of falling crude oil stocks in the United States and falling gasoline stocks over the past week, ethanol stocks were reported to rise to the highest levels on record, up 11.4% from the same week in 2018. This is also despite weekly production that has fallen to a level that is 3.1% lower than the same date in 2018. A crucial trade deal with China that could bring much-needed calm to ag markets continues to be pushed further into the future, if it ever happens.

USDA's recent Canada: Biofuels Annual report points to a few trends in data. The first is declining gasoline consumption. Estimated gasoline use is reported at 46 billion liters (not shown on attached graphic), down for the second straight year and down 2.2% from the 2017 high of 47.018 billion liters. The agency notes improving fuel economy in vehicles, lifestyle changes along with Canada's slowing economic growth leading to the lower consumption, which is forecast to decrease long term.

At the same time, fuel ethanol production and consumption is rising. The blue bars on the attached chart represent production, which is forecast to rise for the second straight year to a record 1.830 billion liter according to table data, while the report indicates this volume could reach 1.880 billion with plant expansions becoming operational, while other expansion feasibility studies remain ongoing.

Consumption of fuel ethanol is also seen rising, as indicated by the grey bars on the chart, with data showing an annual increase seen each year over the past nine years. On a percentage basis, the year-over-year increase of 1.9% to 3.2 billion liters forecast for 2019 is the largest annual increase seen in five years. This level of consumption represents 6.6% of the country's estimated gasoline usage, exceeding the federal government's mandate of 5%. This 6.6% blend rate is the highest percentage reported in the data provided since 2010.

Canada's shortfall is made up by exports from the United States, which is seen by the brown bars on the attached graphic. This volume is reported to have fallen in both 2018 and 2019 to 1.370 billion liters, close to .5% higher than the previous five-year average.

One interesting trend in the data is in refinery capacity utilization, as reported by USDA. The most recent high was seen in 2016 when plant output was reported at 99% of capacity, while this estimate has fallen each year since to a forecast 85% in 2019, the lowest reported in the data shown since 2010. This is shown by the black line with markers on the attached chart, as measured against the secondary vertical axis.

Current feedstock volume used for ethanol production is estimated at 3.668 million metric tons of corn and 890,000 metric tons of wheat in 2019, a significant win for producers as ethanol slowly takes up a larger share of a shrinking pie, which is the overall consumption of gasoline. Total forecast grain use of 4.5 million metric tons (mmt) of wheat and corn combined is up 1 mmt since the estimates for 2010. Over the past five years, plant capacity has averaged 95%. A return to this level would increase demand for corn by close to 510,000 mt or demand for wheat by roughly 541,000, based on the conversions utilized by the USDA of 1 mt of corn producing 417 mt liters of ethanol and 1 mt of wheat producing 393 mt.

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

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(CZ)

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