Ethanol and Corn

Published on: 08:26AM May 01, 2009
As writing in previous notes, corn demand has been challenged during the last several months due to poor profitability from major corn users including ethanol producers and protein and dairy farmers. The demand from these industries make up roughly 70% of the annual corn crop. For the last 18 months or so profitability for livestock and poultry farmers has been poor to say the least and they have reduced the sizes of the herds/flocks. Nothing really has changed on this front. If anything, the recession has hurt their end product demand thus price reaction from the reduced herd/flocks has been minimal. And now dairy farmers have joined the party reducing their herds at record levels. If demand doesn’t improve soon, and the fears from the H1N1 flu are abated, or feed costs move lower, livestock and poultry producers may have to reduced their herds/flocks even more. Ethanol producers have struggled with profitability as well which is well documented. But there may be a ray of hope for ethanol producers. Gasoline prices have improved enough in recent months to offer gasoline blenders a notable incentive to blend their product with ethanol. And this suggests that there may be some upside potential to ethanol prices that could improve profitability and corn demand.
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