November 9, 2006

Ethanol output to surge as corn prices rise 10-year high
 

Corn prices rose to a 10-year high on speculation the US government would lower its forecast for the country's crop, the world's biggest, after possible damage to plants from record temperatures in July.

The market expects the USDA to revise corn estimates lower in its November report, said Kikukawa Hiroyuki, deputy general manager of the research department at Nihon Unicom Corporation in Tokyo.

On the CBOT, December corn rose 1.6 percent, to US$3.5675 a bushel, the highest since July 1996. Prices surged 83 percent in the past year on account of a rising demand for ethanol and meat production.

Rally in corn prices, according to Kikukawa would continue until the USDA released its monthly report on supply and demand.

Since corn is used to make animal feed, sweeteners and biofuel, surging prices might boost costs for companies like Archer Daniels Midland and Tyson Foods.

Incidentally, corn-based ethanol production could reach 31.5 billion gallons annually, or about 20 percent of projected US fuel consumption, by 2015, said a report by the Centre for Agricultural and Rural Development at Iowa State University.

In order to fuel this ethanol production, the country would have to plant about 95.6 million acres of corn, which would mean a production of about 15.6 million bushels of corn, compared to recent levels of about 11 billion bushels. Most of the additional corn acres would come at the expense of reduced soy acreage, according to researchers.