Without a substantial shift in net trade and/or a change in stock levels, ethanol production during the current year will be determined by domestic consumption. To exceed the USDA projection, ethanol consumption will have to breach the E10 blend wall through increased consumption of E85. Increased consumption of E85 could be motivated by a continuation of the scheduled biofuels mandate that would support RINs prices at high levels. The magnitude of increase under that scenario would be determined by a number of inter-related factors including expansion of infrastructure for E85 deployment and the use of RINs credits to meet the mandates. A second way to motivate expansion of E85 consumption is with low ethanol prices relative to gasoline prices that allow competitive pricing of E85 relative to E10. However, that scenario would likely require a continuation of low corn prices. Based on leaked EPA documents, there is some chance that biofuels mandates will be rolled back in 2014. If so, corn used for ethanol production is unlikely to exceed 4.9 billion bushels.
Corn prices, particularly during the last half of the marketing year, will also be influenced by the expected size of the 2014 U.S crop. The higher prices for the 2014 crop now reflected in the market suggest that a decline in production is expected. Such expectations would have to be based on acreage rather than yield expectations. With corn producers reporting nearly 3.6 million acres of prevented planting in 2012 and with current 2014 crop prices favoring corn over soybean production in many areas, a decline in corn acreage in 2014 seems unlikely.
Taken together, current prospects do not seem to favor a quick or substantial recovery in corn prices without production problems in South America. Without an increase in the price for the 2014 soybean crop, lower corn prices may be more likely.