As I pen this column, corn is heading for another week of advances on speculation that demand will increase on Chinese imports and rising ethanol use. The sheer number of mouths to feed will always make China a strong demand factor for U.S. grains, but ethanol is a different story. Ethanol usage for corn is more than double what we export, and that usage can be turned off as easily as a light switch. Click.
At any moment, the Environmental Protection Agency could make a decision on how much ethanol should be blended into gasoline and effectively shut down corn demand, says Gregg Hunt, market analyst with MF Global. "If the government decides to get rid of incentives and waivers and ethanol becomes unprofitable, it will kill the corn market and bring down beans with it," Hunt says.
Ethanol got a pass in December when President Barack Obama approved a tax bill that includes extension of subsidies and tax credits to refiners who blend biofuels into gasoline (see Paul Neiffer’s tax column).
Long term, however, producers need to face the reality that corn ethanol is only one enzyme or two away from demand loss. The gap between corn ethanol and cellulosic ethanol is narrowing more quickly than expected. New enzymes, genetically modified crops and better plant designs are facilitating this process, and analysts expect ethanol companies to increasingly emphasize feedstock flexibility as a way to reduce feedstock risk. Once cellulosic ethanol goes commercial, corn might not be king anymore.
Market Madness. A volatile market situation like this one is just waiting for a key event, whether positive or negative, to make it turn, says Richard Brock of Brock Associates. Read what he and other analysts had to say at the Farm Journal Media Marketing Rally.
Aside from daily monitoring of these crazy markets, Greg Wagner, an independent commodity analyst in Chicago, believes farmers need to watch what is happening on the periphery. This month we feature several articles on big picture issues that could change ag markets, such as how financial reform legislation could affect trading and why inflation in China impacts demand. Learn about the logjam on our rail system and what the government is doing about it in "Perfect Harvest, Perfect Logjam."
Say Hello. Finally, listen and join in on the discussions about ag markets at Top Producer Seminar in Chicago this month. I look forward to seeing farmer friends and meeting new readers. Make sure to stop me and say hello.
- January 2011