February 3, 2010

Ethanol demand key to grain prices in 2010

Demand for ethanol will likely be the deciding factor for grain prices and planting this spring.

Since the USDA reported a larger corn harvest than expected in 2009 and in anticipation of a “monster” soybean crop in Brazil, both corn and soy prices have fallen in the last three weeks, said University of Illinois (UoI) farm economist Darrel Good.

“The challenge for some is going to be if they want to plant corn where they had corn last year,” Good said, noting that a wet spring and fall resulted in one of the latest harvests in decades last year.

According to a recent USDA report, Illinois corn production was down 3% last year, to a little more than 2 billion bushels, primarily a result of the wet spring and fall.

On the other hand, soy production was up slightly from 2008, standing at 430.1 million bushels. Nationwide, corn production was up 8.7% to 13.1 billion bushels. Soy production of 3.3 billion bushels was up more than 13%.

As a result of the nationwide production increase, corn that sold for US$3.85 a bushel three weeks ago was at about US$3.70 on Monday (Feb 1). Soy dropped from a little more than US$10 to US$9.28 in that same period. Both prices are for July delivery.

However, Good said early forecasts are for an increase in corn acreage to meet the increased federal targets for grain-based ethanol as part of the push for alternative fuels. The figure rises to a minimum of 12 billion gallons this year from 10.5 billion in 2009.

“From here, it goes up 600 million gallons a year until it reaches 15 billion in 2015. We think there may be more demand with the economy coming around, and export demand may be a little bit stronger,” said Matt Hartwig of the Renewable Fuels Association in Washington D.C.