In 2014, global demand has helped support maize processing into ethanol. Most of the U.S. ethanol production (95%) is used on the country's domestic market. This industry enables the country to address the 10-percent ethanol incorporation into petrol. Besides, a renewed request to change this rate has been recently rejected again by the EPA. The U.S. agency had actually suggested a reduction of the incorporation levels, while ethanol producers have been requesting that the rate be raised to 15%.

After a dry spell early this year, Brazilian sugarcane production has been dropping. As a result, Brazilian ethanol has lost competitiveness and the country's export available supply has been falling (1,5 billion litres, down 46% from 2013, and reaching its lowest since 2003), enabling the Americans to strengthen their position on the world market. The U.S. ethanol plants, which are mostly located in the Midwest, are thus taking this opportunity to enhance their exports (up more than 30 % - the highest since 2011). Moreover, the maize harvest has been abundant this year and prices have been going down, while the cold weather has allowed for optimal processing, allowing operators to secure their margins.

At the end of November, the U.S. ethanol production stepped up again, reaching a new record of 982 000 barrels a day. The record was beaten yet again during the first week of December, with a daily output of 988 000 barrels and stocks rebuilding at 17,8 million barrels (21 days of reserve). The high processing rate confirms the strong world demand for ethanol – however, the question is if it can stay unchanged against the background of falling oil prices.

What Is the Outlook for Ethanol Production?

The EIA (the U.S. Energy Information Administration) has published its outlook report on the 2015 energy market. In it, it forecasts that the average petrol price will stay around $68/barrel in the coming year. Despite the competing fossil fuels, the U.S. agency estimates that the average ethanol production rate will stand at 948 000 barrels/day in 2015, up from the average 921 000 barrels/day in 2014.

This production increase should allow producers to meet an equally rising demand. As a substitute to fossil fuels, ethanol may well help the U.S. and China to meet their latest commitments on climate (made on November 12). The two countries account for more than 40% of the planet's greenhouse emissions, being the first and, respectively, the third world ethanol producers.

As for the second world ethanol producer – Brazil –, its government is about to raise the ethanol rate of incorporation into petrol, again. After having been increased to 25% in 2013 (from the previous 20%), the incorporation rate may from now on stand at 27,5%. This new increase should raise the Brazilian demand for biofuel by 1 billion litres per year.

Nonetheless, by having confirmed, on November 27 last, their wish of not reducing their oil production, the OPEC members triggered a new oil-price drop, already initiated this past summer. The drop may slow down the industries' transition to renewable energies, which now prove to be less competitive. The competition between the different types of energy may eventually reduce ethanol demand and drive the EIA to revise their projections downwards.