US Department of Agriculture’s (USDA) latest report on World Agricultural Supply and Demand Estimates shows that the fuel production has overtaken food consumption of corn.

According to the USDA data, corn’s food consumption in 2011 is projected at 5 billion bushels while corn demand for ethanol production reached 5.05 billion bushels.

This is the first time that the fuel producers have become single largest consumers of the American corn – a significant milestone in the ongoing food-for-fuel debate.

USDA also projects that for 2012 the corn deficit gap between food and fuel consumption will grow.

USDA sees corn for fuel growing nearly 2% by 2012 versus corn for food by 1%.

The trajectory of corn fuel has been steadily rising over the years as have other foodstuffs used for fuel making. As a result the food index (red dashed line) has been extremely volatile since 2007.

Cattle growers have been constrained in particular due to the high cost of animal feed, most of it made of corn. While ethanol producers can quickly adjust their production in response to changes in corn price, cattle producers cannot. It takes a longtime to raise a calf to the slaughter weight during which time corn price can eat away any gains from the beef price. This constraint takes away any incentive for herd expansion and as a result shrinks meet availability.

On the other hand, it will be rather interesting to see the reaction from the ethanol producers now that they have officially become the largest source of corn demand in the US.