The top two corn use sectors suffered in 2009. Livestock producers saw cash receipts collapse almost 20%, and ethanol plants faced resistance from blenders as their product's price rose above gasoline's. Both will improve in 2010 but concerns remain, Ann Duignan, analyst for J.P. Morgan, told attendees at the Top Producer Seminar.
USDA projects livestock receipts will rebound to $130 billion, the third highest on record. "We are a bit more conservative, at about $125 billion,” Duignan said. "With more than 40% of corn consumed by the protein sector, we feel there is still risk regarding demand.”
At the same time, ethanol producers are making money, but blenders are not, Duignan said. J.P. Morgan estimates that with corn bought at $3.30 per bushel and ethanol selling for $1.82 per gallon, a corn ethanol dry mill is making $2.16 per gallon. "If corn rises to $4.22 or ethanol drops to $1.48, revenue would be at break-even,” Duignan warned.
"The blending credit is only 45¢ now, and ethanol price remains above gasoline, so blenders will not buy more than the mandate requires,” she said.
Profit Margins Modest. Using a 170-bu. yield and a $3.73 cash price in 2010, corn profit before land cost is $240 per acre or a 37% return on variable costs of $411, Duignan figures. However, when you factor in $250 per acre cash rent, corn is in the red 1%.
Soybeans show a greater return on variable costs than corn, assuming a 50-bu. yield and cash price of $8.67, she said. Return is $203 per acre or a 45% return—but assuming the same $250 per acre rent puts beans 10% in the red.
"Both of these estimates are improvements over 2009,” Duignan told the seminar audience. "But we highlight the need for input cost management and the importance of locking in margins.”
Top Peoducer, Spring 2010