Here’s something that’s different for a change. The talk this week in the commodity trade isn’t about China.
The World Agriculture Supply and Demand Estimates (WASDE) report released Wednesday morning show that ethanol is going to continue being a major consumer of U.S. corn. And livestock feeders aren’t going to back off their use in a major way either. At least for now. "It’s probably more of what you’re going to do from June onward to solve the problem, rather than what you’re going to do in the first quarter," says Jerry Gulke, president of the Gulke Group.
The WASDE report released Wednesday shows corn carryover estimates dropping below 700 bil. bu. to 675 bil. bu., which is the lowest estimate in 16 years. Corn, which is already at high price levels, isn’t showing signs of lessening demand as prices continue to inch higher. The March 2011 contract on the Chicago Board of Trade topped the psychologically-important mark of $7.00/bu. on Friday to close at 7.06 1/2 /bu.
"Nobody is talking about China anymore. We’re not even talking about them buying or stopping them from buying, we pretty much believe what they’ve said that they’re not going to buy anymore. This is a domestic thing between livestock and ethanol and who will blink first," Gulke says.
Blinking may become a challenge for both markets. For now, Gulke says, livestock feeders appear to have good profits locked in. This may cause some cut backs in the rations for cattle feeders and dairy producers, but not likely a widespread liquidation of herd size.
On the ethanol front, a speaker at Gulke’s annual meeting for his members this week said the ethanol industry is much more astute than they were in the most recent corn price rise in 2008. There is a chance, he believes, that the ethanol plants may shut down in late summer to run up the price of ethanol and make it more profitable.
"It sounds like the whole industry, I don’t care who it is, has gotten a lot more astute about this. What I like about hearing all of this is we may slow demand down enough to where $7.00/bu. or $7.50/bu. does the job. Then we push the problem off to 2012 and we have a whole year to manage it instead of just two months."