Canada Markets

A Twitter communication caught my eye yesterday, stating:

"U.S. ethanol plants supplied 41% of Canada's 5% national ethanol mandate in 2012 with total U.S. exports to Canada at 233 million gallons."

A similar article written by Sean Pratt in The Western Producer titled U.S. corn making much of Canada's ethanol arrived in my mailbox later in the day. Really? The boon to Canadian producers is nowhere close to what it could be.

There are an endless number of complexities behind the situation facing the Canadian industry. Canada requires 2.2 billion litres of ethanol to meet its federal mandate, while the Canadian Renewable Fuels Association claims a current domestic capacity of 1.6 billion litres. The United States, on the other hand, is over-capacity, with current capacity at 55.7 billion litres to meet the 2013 mandate of 50.7 billion litres.

Other issues include the cost of corn relative to wheat, the relative production costs given the higher cost of Canadian labor, along with the declining tax credits offered by governments, which will make imports look even more attractive over time.

The merits of producing home-grown product versus importing could perhaps be debated for weeks on end, while the first thought across my mind is the lost opportunity in feedstock deliveries for Canadian producers due to volumes imported.

As seen on the attached chart, imported volumes grew from 452 million litres in 2010 to 1.176 billion litres in 2012. This data is obtained from the U.S. Energy Information Administration (EIA). Note that 2012 import data varies from the data presented in The Western Producer from the Renewable Fuels Association (RFA), with EIA data suggesting imports are even higher than reported by the RFA in 2012.

So just how much grain did it take to produce the imported volume? Using the conversion of 1 metric tonne of corn produces 400 litres of ethanol, while 1 mt of wheat produces 375 litres of ethanol, we see on the chart that the feedstock required to produce this imported volume, also viewed as a lost opportunity for Canadian producers, has climbed from 1.13 mmt of corn in 2010 to 2.94 mmt in 2012. Due to wheat's slightly lower conversion rate, the feedstock required has climbed from 1.205 mmt in 2010 to 3.136 mmt in 2012.

I'm sure that no one would have predicted Canada to be the American's No. 1 customer when it comes to ethanol, while on the other hand, it may be a problem that only hundreds of millions of dollars of investment can solve.

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

(AG)

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