StoneX Media
When energy prices spike, countries that import most of their fuel start asking a simple question, how much of it could they grow at home? Global biofuel demand is rising as energy-import-reliant nations such as Brazil, India and parts of Southeast Asia lean more heavily on crop-based fuels after the Middle East energy shock. That shift matters well beyond the fuel pump, because biofuel mandates abroad draw on the same corn, oilseed and ethanol supplies that grain exporters compete to sell. For U.S. producers and commercial buyers, the biofuel story is increasingly an export demand story.
Mike Castle, StoneX Senior Commodities Economist based in Kansas City, covers grain, oilseed and fertilizer markets and discusses the factors moving prices. His work tracks supply and demand fundamentals, U.S. Department of Agriculture data and global trade flows, the channels through which biofuel policy abroad reaches demand for U.S. grain.
Brazil's ethanol mandate has climbed from E30 to E32 since the outbreak of the war in the Middle East, and the country is already testing E35 as it looks for relief from higher energy prices. The country is now, Castle explains, "trying to find cheaper domestic alternatives, increasing a lot more specifically corn-based ethanol production", which means more Brazilian corn is staying at home to feed biofuel demand. As a result, Brazil is less competitive in the corn export market, and that leaves more export demand for U.S. corn. Why should a fuel policy decision in Brazil register with a U.S. grain buyer? Brazil competes directly with the U.S. for corn export business, so corn diverted into Brazilian ethanol plants is corn that is no longer chasing the same overseas buyers.
"There is still this underpinning feature of strong biofuel inclusion globally," says Castle. Global biofuel demand is being driven by energy-import-reliant nations such as Brazil, India and some Southeast Asian countries, which are leaning more heavily on biofuels while the energy shock plays out. Notably, that demand is building at a time when some traditional grain supply is constrained, with shipments from the Black Sea effectively cut off and Ukrainian corn not making it to market. Weather adds another layer, since a strong El Niño can often hit production across Asian markets, especially Southeast Asia. Consequently, rising biofuel inclusion supports overall grain and oilseed demand globally, and U.S. exports sit squarely in the path of that demand.
U.S. biofuel policy is pushing for substantial biofuel inclusion, with the growth focused on soy-based biodiesel rather than the corn-based ethanol that has traditionally led U.S. biofuel demand. As a result, the domestic policy push lands mainly on soybeans, while corn leans more on the global push toward higher ethanol mandates. Outside the U.S., mandates in Brazil and other energy-import-reliant nations create demand that can still reach U.S. corn farms through the export market, either as corn itself or as ethanol. For producers and commercial buyers, overseas ethanol policy becomes one more demand-side factor for corn to track alongside the U.S. export sales data, since progress on domestic corn ethanol has been slow. According to Castle, "It's pulling teeth just to allow year-round sales of E15."
--- Written by Gus Farrow, Senior Manager, StoneX Media
--- Expert: Mike Castle, StoneX Senior Commodities Economist
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Energy-import-reliant nations are turning crops into fuel at home, lifting global biofuel demand as the Middle East energy shock lingers. Brazil's higher ethanol mandate shows how that shift keeps more corn off the export market and opens room for U.S. supply.
Funds Liquidate Corn
October 16 – Stocks are squarely in the red at midday, with the tech heavy Nasdaq now down over 2.1% to trade at a one-month low, while the S&P 500 (-0.8%) and Dow Jones (-0.5%) see more modest losses. The VIX is rising sharply following escalatory headlines coming out of the Middle East, with reports of potential Houthi strikes targeting the Saudi’s East-West oil pipeline again, this time in the Yanbu region, while signals out of the U.S. and Israel point to a potential escalation in the conflict with Iran, pushing Wall Street’s fear index to its highest level since late July near 19.7 at the time of writing. The dollar has pared its sharp morning losses to now hang ~0.1% lower at midday, just above the 101.9 level. Treasury yields are quietly higher at midday, with 2-year yields at 4.757%, 10-year yields at 5.106%, and 30-year yields at 5.44%. Crude oil is also spiking in response to the aforementioned headlines out of the Middle East, with nearby Brent now up 3.2% on the day to trade near $109.30, flirting with taking out the mid-September high that represented highs not seen since May, while nearby WTI is up a more modest 0.9% on the day, trading near $98.40. On the ag side, the grains and oilseeds are widely lower, save for small gains in soybean oil, while the livestock sector is pushing higher to end the week.
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