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RSS By: Kevin Van Trump, AgWeb.com

Kevin Van Trump has over 20 years of experience in the grain and livestock industry.

Ethanol & Politics...Why It Might Not Mix

Jan 26, 2011

 With global fuel prices surging US ethanol demand could soon skyrocket.  The US has generally lagged behind South America as far as global ethanol exporting.  The global market generally looked to Brazil for a less expense blend of ethanol made from "sugar".  Now that sugar prices have escalated to an extreme level, US ethanol is much cheaper and is now in much greater demand.  Throw in the fact that here at home that ethanol prices are now below gasoline prices, all of a sudden we have the potential for massive demand.  You almost have to believe that corn prices must push their way higher fairly quickly in order to somehow slowdown and ration the amount of corn being used for ethanol production.  If the demand for ethanol continues to grow, and corn prices stay at the same level, ethanol plants are almost certain to chew through corn at a record pace.  In addition increasing ethanol demand will certainly bring more pressure and take away corn from livestock and poultry production.  Ultimately putting more pressure on meat production and driving livestock prices higher.  What you have to realize is that we are closing in on record low ending stock levels that were established "PRE" ethanol or biodiesel days.  If you subtract all of the usage that the ethanol plants will be using during the next few months we are certain to be well below historical lows.  You mark my word, despite the recent cheerleading for "bio-fules" political pressure will soon start to mount on this entire "ethanol" game.  John McCain is already throwing a fit in DC about farm subsidies and the recent passing of the blenders tax credits.  If the blenders feel more pressure beginning to mount and fear that the government is going to pull the plug, I can almost guarantee you that they significantly ramp up production, trying to squeeze every last penny out of the extra incentives before they dry up and go away.  If this happens "old crop" corn will be in very short supply.  I continue to like selling new crop put premium and using the revenue to purchase old crop calls.  An example would be selling the December $5.00 puts and buying the July $7.50 calls. 

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