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Corn Rationing Needs to Begin

December 31, 2010
By: Fran Howard, Contributing Writer
harvested corn
Analysts expect short supplies and heavy use to keep upward pressure on corn prices in 2011.  

The corn market is extremely tight heading into the New Year, and analysts expect short supplies and heavy use to keep upward pressure on corn prices in 2011.    

"The corn market has one job and one job only—to go high enough to make people stop using the product," says Ryan Turner, risk management consultant for FCStone, Kansas City. "We are past the point of encouraging more supply." Turner predicts 2011 corn futures prices will exceed 2008 highs. "I don’t know if it will happen in January or June, but it will happen," he says.
Soaring corn prices will slice into demand, with corn exports expected to fall first followed by feed usage. Analysts anticipate the cattle industry to begin rationing earlier than other livestock sectors due to poor margins, but rationing in poultry, hog, and dairy will be close behind. "It will be very painful," Turner adds.
USDA’s latest World Agricultural Supply and Demand Estimates (WASDE) put the carryout for the 2010-11 U.S. corn crop at 832 million bushels, less than half the previous year’s carryout of 1.7 billion bushels. USDA pegs the average U.S. farm price for the 2010-11 crop at $4.80 to $5.60/bu. World supplies have also tightened: USDA’s latest estimate for world ending stocks for the 2010-11 crop is 130 million metric tons, a nearly 12 percent drop from the previous year’s 147 million metric tons.
Looking ahead to the 2011-12 crop, Chad Hart, agricultural economist with Iowa State University, calculates the full cost to grow corn in Iowa will be $4.25 to $4.50/bu., but revenues will be more than $5/bu., leaving at least a 50-cent-per-bushel margin. "That’s a really good margin, similar to 2007-08, when the first big push in ethanol occurred," says Hart.
Recent extension of the tax credit for ethanol blenders could mean ethanol plants use more of the current corn crop than the 4.8 billion bushels USDA projects. "Everyone in the ethanol production and marketing chain is seeing positive margins," says Hart. Only runaway corn prices coupled with low gasoline prices could slow ethanol production next year, he adds.
The past eight corn crops have been the largest in U.S. history, so the probability that another large crop will be on tap for 2011-12 is high. Assuming a slightly better than trend yield of 162 bu per acre and 91 million acres planted to corn (roughly 3 million acres more than last year), Jim Hilker, agricultural economist with Michigan State University, calculates a 2011-12 corn crop of 13.6 billion bushels.
With current carryover stocks at 6.2% of total use, Hilker says there is no room for error. "If something goes wrong, corn prices will go a lot higher," he says. If growers plant even more acres to corn and yields are above 162 bu per acre, Hilker says, "prices will dip, but they won’t crash."
Tom Grisafi, president of Indiana Grain Company, Valparaiso, Ind., says corn prices need to move well above $6/bu to shake out end users. Yet it is unclear whether end users—who have become accustomed to extreme volatility—will cut back quickly.
"Corn has never traded this high so consistently at this time of year," Grisafi says. The upside price potential for 2011 corn prices is nearly unlimited in his view. "It’s the price that bankrupts the meat and ethanol industries," Grisafi says. 

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RELATED TOPICS: Corn, Farm Business, Marketing, Crops

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COMMENTS (10 Comments)

roger - east galesburg, IL
I'm a livestock producer that thinks the corn ethanol policy is insane. We've taken the stocks to use for corn from 20% to 6% in 6 years. Acreage has been increased and we have been at or above trend in 5 of the 6 years. We are closing in on the longest period since a widespread drought in over 800 years. Let's see, a federal mandate, $0.45/gal tax credit, $0.51/gal import tariff, govt sponsored crop insurance, and direct govt payments. It sure looks a fair playing field.
Environmentalists have turned against corn ethanol. The net energy gain from corn ethanol is marginal, it requires fuel to produce seed, fertilizer, to grow the crop, to transport the crop, to dry the crop, to re-transport the crop, to convert it to ethanol, to transport it to a blending facility, to blend the ethanol, and to transport it to a retail outlet. Even Al Gore has seen the light and admitted corn ethanol is a mistake hard to correct due intense lobbying efforts. This has become ag policy. The grain markets would collapse in the absence of corn ethanol. Why can't grain farmers be reasonable and accept a reasonable policy for both the livestock sector and the grain sector? The reason returns to grain farmers have been historically low is because the govt has always been there to mitigate risk. It now appears to be a perfect world, still have the govt help mitigate risk (crop insurance & direct payments) but also have the govt create incredible demand leading to astronomical prices. In the long run, it appears that grain farmers cheerleading this policy will overplay their hand as consumers become better educated of the tradeoffs of the govt policy regarding corn ethanol. Left unchecked it will cause devasting effects on the livestock sector, corn ethanol is deemed the winner via a govt mandate.​
8:14 PM Jan 3rd
NW Iowa Farmer - IA
Demand/Supply drives corn prices. If a dairy isn't smart enough to cover feed cost & understand their cost of production and what they can sell it for maybe they need to get out. I never heard them complain when they could buy sub $2.00 corn, but now they have to pay what corn is worth and they complain. Wow a few years ago they made money hand over fist now its the grain farmers turn but it isn't fair?

Ethanol production is a positive thing for this country. Every bushel of corn that is used to produce ethanol also produces distillers grain which is used to replace corn in many livestock operations.Hmm.....we get two uses out of a bushel of corn this way. Seems more effeciant to me. Plus it has helped to keep fuel prices lower buy off setting gallons of fuel.

The thing everyone should be concerned about is fuel prices. Crude is close to going over $100 a barrel again. This is what impacts food prices, input cost, and transportation for agricultural products. I still can't understand why people in the city can understand fuel prices takes a bite out of there living expense when they go to fill the car with fuel & can't connect the dots that it adds that much to the transportation of food. If we can't find or keep cheap fuel/energy prices here in the states then everybody needs to prepare for an economic collapse of this country.

People need to remember Big Oil has the money to run everything world wide & has the deepest pockets. Last time around they broke most if not all of the ethanol plants & turned around and bought them. Now that they own them Big Oil is going to make money on them.
4:27 PM Jan 3rd
sasquach - franklin, PA
Livestock people are already looking for ways to raise animals without feeding corn and soybeans; the answer seems to be feeding QUALITY forage. True, this may mean trouble for some feedlots. We are in for challenging times.
6:55 PM Jan 1st
People seem to forget the fact that we as grain farmers have struggled for nearly all of the last 30 years prior to the current markets. As for the food price effect from ethanol I say bull. The effect of grain on food prices is minimal at best as the price of grain is very minimal in the overall production cost of virtually all food items. Oil has as much or more impact. Those who are against ethanol subsidies should consider how much the oil industry is subsidized. Why not let ethanol compete on a level playing field with foreign oil? Keep in mind that nearly a third of every pound of corn that's used for ethanol production returns as a byproduct for feed use along with several other byproducts. I wish everyone would or could become more familiar with ALL the FACTS before passing judgment.​
8:07 PM Dec 31st
Northeast Texas - brashear, TX
I wish the government wanted to use milk for fuel.Maybe our prices on the dairy farm would come up to break even.
6:30 PM Dec 31st
ok, so lets stop using food for fuel. We have plenty of other stuff to use for fuel. How dumb is it to burn food and then complain about food prices and shortages? The issue of climate change is a smaller issue than the issue of high prices for food and energy. Those who believe otherwise have other motives. Check out Al Gore and scientists looking for research dollars and publicity.
5:55 PM Dec 31st
ciszewski2000 - Tonganoxie, KS
With fuel prices predicted to hit $5 per gallon, will we be able to afford to plant this $6 per bushel crop?

3:51 PM Dec 31st
I understand the dynamics of what is happening, unfortunately this is getting scary. The effect it is having on all ag inputs, and the food supply. This will be a short term blessing with very monumental and unintended results
3:46 PM Dec 31st
Daniel - Pine City, MN
Not to long ago I remember 2.50-2.75 a bu corn, lets just sit back and watch her go.
3:10 PM Dec 31st
PullMyFinger - Chappell, NE
Let's not be too quick to forget the 18th century grain prices we have been stuck with until very recently.​
1:37 PM Dec 31st



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