WASHINGTON – The U.S. Energy Information Administration (EIA) reported last week that expectations for a record corn harvest in 2013 have helped lower corn prices since this summer, improving ethanol production margins and spurring an increase in the supply of ethanol.

During the 2012 corn-growing season, the U.S. experienced the most severe and far-reaching drought since the 1950s, reports EIA. Approximately 85% of the corn grown in the United States was located in a drought area. A projected 2012 crop of 14.8 billion bushels of corn dwindled to a final production level of 10.8 billion bushels by the end of last year's harvest period.

For 2013, the USDA is predicting a record-high corn crop of 14.0 billion bushels, a 30% increase over 2012. Between October 2012 and January 2013, the ethanol margin for producers was close to zero, reports EIA, and the recent reduction in corn prices “had a major impact on the profitability of ethanol production, because purchased corn is by far the largest cost incurred by ethanol producers.” On average, one bushel of corn can produce 2.8 gallons of ethanol.

Between January and November 2013, corn prices fell from about $7.50 per bushel to below $4.50 per bushel. This $3 reduction in price, according to EIA, translates into a roughly $1.08 reduction in the cost of ethanol production. While ethanol prices have also declined, ethanol producer margins have risen above $0.50 per gallon in recent months.

EIA notes that improved margins “have incentivized greater levels of ethanol production, with output recovering to pre-drought levels. At the same time, lower prices have made ethanol more economically attractive for refinery blending, and output of ethanol-blended gasoline has risen. Net use of ethanol by refiners and blenders reached an all-time high of 884,000 barrels per day in August 2013.”