January 3, 2008

 

US may face corn shortage in 2008
 

 

US analysts are predicting a shortfall in the US corn crop for 2008 as voracious buying from new ethanol plants and farmers' possible cutting back of corn acreage meant even tighter supplies of corn this year.

 

Corn prices, which have reached historic highs last year, would continue to breach new grounds for 2008 and even 2009, Chris Hurt, Purdue Extension agricultural economist, told the Indiapolis Star.

 

Corn is expected to be in the mid-to-high US$4 range.

 

Current US ethanol production capacity stands at about 7.3 billion gallons. The amount is expected to rise close to 80 percent to 13.3 billion gallons by the end of 2008.

 

Plant openings will come fast and furious in the first half of 2008 as production capacity swell by 4.5 billion gallons, meaning corn requirements would surge from the current 2.5 billion bushels to 4 billion bushels by July this year, a 60-percent increase, Hurt said.

 

The spate of plant openings would likely abate in the second half of 2008, when an additional 1.7 billion gallons in capacity is expected.

 

At the same time, farmers may not necessarily be inclined to plant corn, given the high prices of other crops. The competitive prices of wheat and soy in world markets due to shortages may draw farmers away from planting corn, exacerbating the situation in the US.

 

It may not be until 2009 when corn production may be able to meet demand, Hurt said.

 

Corn supplies are now stretched so thinly a moderately small decline in corn acreage may mean rationing of the crop.

 

If corn prices are high enough, it would mean ethanol plants would more likely run at below capacity. The ethanol industry would likely face excess production capacity and narrow margins, or even losses, for periods during the next two years, Hurt said.

 

Prices for ethanol are already heading down as producers rushed to build plants throughout the Midwest.