With a short crop on the horizon, end users are scrambling to meet their corn needs. But unfortunately, Jerry Gulke says, a free market isn't always a fair market.
It's no secret—while the drought has had widespread effects throughout the ag industry, the lack of a corn crop this year has hit end users especially hard.
Just last week, USDA lowered its corn production forecast to 10.8 billion bushels, down 17% from last month and 13% from a year ago. The department also slashed its national corn yield estimate to 123.4 bu. per acre, the lowest average yield since 1995/96.
Corn prices have since reached all-time record highs. The combination of high grain prices and steadily deteriorating pasture and rangeland conditions has made it difficult for many livestock producers to keep their operations afloat. Feed has become a No. 1 priority.
Meanwhile, the Renewable Fuels Standard is requiring U.S. fuel companies to blend 13.2 billion gallons of ethanol into gasoline by 2013. According to The Ohio State University Extension, that would require about 40% of the corn crop to be made into fuel.
So what happens when there's not enough corn to go around? "It just means someone is going to do without, or we all do without a little bit," says Jerry Gulke, president of the Gulke Group. He says the lack of corn this year is causing increased competition—and increased tension—between the livestock and ethanol industry.
Upping the stakes even higher is ethanol's current profitability. "Right now, ethanol seems to be profitable," Gulke says, citing higher gasoline prices and a resulting greater public demand for ethanol. "So the ethanol guy is real reluctant to back off right now, as long as he can make money, and that presents a problem for the livestock guy."
Gulke adds that this can cause tension at a very local level.
"We've been watching this for years, to see when push comes to shove, who is going to win when you compete against youselves," Gulke says. "This is not competing against Russia or China buying corn from us; they're not the culprits. It's maybe the guy next to you in church.
"That's the unfortunate thing about a free market. When it works, it's great, but it's not always a fair market."
As a corn producer, Gulke says he's concerned about keeping the demand base intact.
"That's the key question," he says. "What kind of demand base are we going to have left when we harvest next year's crop?"
Listen to Jerry Gulke's full market analysis: