February 11, 2011

 

US corn stocks shrink to 16-year low

 

 

Corn demand for ethanol and other uses has shrunk the remaining supplies in elevators and farmers' bins to the lowest levels since 1995, USDA stated Wednesday (Feb 9).

 

That surplus amounts to an 18-day supply of corn ready for immediate use, compared with more than 40 days a year ago.

 

As a result, corn prices have doubled from US$3.50 last June. Food makers, meatpackers and restaurants have already warned that consumers will pay higher prices as a result.

 

For Iowa's economy, the surge in prices for corn and soy has added an extra US$7 billion in cash above the US$13 billion farmers received for their corn and soy a year ago.

 

The USDA's monthly supply and demand report issued Wednesday (Feb 9) morning increased its demand forecast for corn for ethanol by 50 million bushels, to 4.95 billion bushels this year.

 

The use of corn for ethanol has risen about 33% since 2008 and will consume almost 40% of the 12.4 billion bushels of corn produced in the US last year.

 

In Iowa, ethanol is expected to consume an even higher percentage of the state's corn-up to 60%-because of the 41 plants in the nation's leading ethanol-producing state.

 

The surge in demand for corn as an ethanol feedstock and higher commodity and supermarket prices are likely to revive the food versus fuel debate that began in 2008 when corn prices briefly exceeded US$7 per bushel before falling back.

 

Anticipating such criticism, the Renewable Fuels Association said, "Many will use strong ethanol demand as the rationale to drive the price of corn futures as high as the market will bear. In turn, this will likely cause ill-informed industries and talking heads to pronounce US ethanol production as the root cause of food inflation the world over."

 

Corn-based agriculture also is bracing for criticisms that have come from overseas, where rising food prices have generated warnings from the UN and other organisations of increased hunger and political instability.

 

Beyond the extra demand for ethanol, the USDA report showed that a variety of factors contributed to the decline in reserve corn stocks from just below 1.8 billion bushels last May to 675 million bushels this month.

 

The report is likely to continue upward momentum for corn prices unless farmers increase their corn acreage by at least five million acres from the 88 million they planted last year.

 

On Wednesday (Feb 9), the front-end March contract for corn closed up US$0.24 per bushel at US$6.98. The May and July contracts rose to US$7.09 and US$7.13 per bushel, respectively.

 

Don Roose of US Commodities in West Des Moines said the USDA report "is a loud and clear signal that we haven't slowed (corn) usage. At some point, we'll have to reach price levels to slow down demand."

 

Analyst Arlan Suderman of Farm Futures Magazine noted that the soy price of US$14.50 per bushel is what is considered a low 2.27 times the price of corn. That "adds further risk to corn's ability to get the 93 million acres it needs for the approaching growing season," he said.