June 11, 2007

 

US corn prices seen easing this fall but will rebound

 

 

Corn prices are seen weakening by late summer or fall, but that may be a buying opportunity since the longer-term view is still expected to be strong due to growing ethanol demand.

 

Livestock and poultry producers and other users of corn may benefit from better early-season crop conditions across most of the US Midwest in the form of lower prices during the late summer and fall months, said Robert Wisner, professor of economics at Iowa State University. Wisner presented his outlook for feed costs over the next two years Thursday at the World Pork Expo.

 

Wisner said that while crop conditions currently are viewed as better than at this time a year ago, expanding ethanol demand and the always-present risks of short rainfall in any part of the corn belt could be enough to push prices back up after the harvest is completed.

 

He said there is a 65 percent probability that December corn futures prices at harvest time this fall will be around US$3.25 per bushel. This price projection is based on an average yield in Iowa of 150.5 bushels. December corn at the Chicago Board of Trade on Thursday closed at US$3.93 1/2 per bushel.

 

Looking ahead to next year, Wisner said December futures at harvest time then hold a 65 percent probability of being at US$3.65.

 

Expanding demand from the ethanol industry will require more corn in the future. Wisner said there are currently 30 ethanol plants in operation in Iowa with 10 more under construction and 34 more planned but not yet under construction. His data show that the 30 plants now operating required 53.1 percent of the 2006 Iowa corn crop. The 10 now being built would use the equivalent of 21.8 percent of the state's 2006 crop. The 34 additional plants that are planned would push the demand from the ethanol industry to 142.4 percent of the 2006 Iowa crop.

 

To achieve enough production to meet the ethanol demand in Iowa would require a much higher percent of the acreage being planted to corn and more of that to continuous corn versus rotating with other crops, Wisner said.

 

He said additional ethanol plants in other areas around the Midwest and sprinkled elsewhere throughout the country will require more corn. In addition, several other countries are currently producing ethanol fuels or are considering doing so. Expansion of biodiesel fuels also will compete for the crop land, he said.

 

Wisner projects that the ethanol industry in the US will need nearly 6.0 billion bushels of corn annually by 2012, which is well above the US Department of Agriculture's projections in February for of just over 3.0 billion bushels. He said the ethanol industry has grown much faster than USDA had earlier predicted.

 

There are several factors that could affect change the prospects for global grain supplies. These include possible accelerated increases in corn yields through technology, a collapse in crude oil prices, breakthroughs in converting cellulose to ethanol, changes in tax or fuel blending credits, and adjustments in livestock and poultry production.