Corn bulls left wanting as ethanol hits the brakes The ethanol industry, the largest single user of the US corn crop, is finally hitting the brakes. After quadrupling between 2004 and 2011, output peaked late last year at nearly 1m barrels a day. Since January 1, when a lucrative tax credit expired, volumes have levelled off at about 900,000 b/d. The slowdown has important implications for both agriculture and energy, two commodity markets that increasingly act as one. A more measured pace for ethanol may give corn farmers a better shot at rebuilding severely depleted stocks of the grain in the next couple of years. The US Department of Agriculture last week explicitly cited falling output and negative profit margins for ethanol refiners as it forecast corn prices to decline nearly 20 per cent. "Ethanol production will continue to increase, but far more gradually than what we saw over the last five years," Joseph Glauber, chief economist at USDA, told me. That's just because the ramp-up was pretty stiff. The US government's renewable fuel mandate requires 15bn gallons of conventional corn-based fuel ethanol to be sold by 2015, even without the tax credit. This is equal to about 978,000 b/d, so industry capacity is already there. At a time when crude oil has surpassed $120 a barrel, ethanol represents an attractive supplement to petrol. CBOT ethanol futures yesterday closed at $2.24 a gallon, while Nymex RBOB gasoline was $3.10. But infrastructure and regulatory constraints and weak petrol demand mean the US is already burning as much ethanol as it can, making it tough for the ethanol industry to expand beyond its mandate. Exports to Brazil, a stopgap last year, have grown less reliable as falling sugar prices revive the South American country's own pioneering ethanol industry. In other words, ethanol will remain a large but not insatiable consumer of US corn in the next few years. USDA says annual corn use for ethanol will hover near 5bn bushels until late this decade, after dipping 50m bushels to 4.95bn in the coming crop year. Until the US finds a way to mop up extra ethanol, corn bulls will need to find some new fodder.