Ethanol's Issues and What That Could Mean for Corn Prices
Nov 08, 2012
Corn demand continues to be questioned by the bears, but the bulls are pointing to the fact US corn is quickly becoming more competitive on a global scale. I am hearing reports that US corn is now thought to be only $20 per metric ton higher than South American corn. I am not saying we are going to see a huge jump in US export business near-term at these prices, but you have to believe from January forward the US export business could really star tot heat up. Surprisingly ethanol production was once again slightly higher, reported at 827,000 barrels for the week ending November 2nd. Even better news was the fact ethanol stocks were actually down more than 5% compared to last week. The issue still remains that we are sitting on 10% more ethanol supply than we were last year and production is close to 10% lower at this stage. Obviously corn demand being used for ethanol is down substantially compared to last year. From my perspective we are right on track to use the 4.5 billion bushels of corn the USDA has estimated for ethanol production, just as long as we don't see more closures or reductions in the run rates we should be able maintain. There is still some talk however that corn used for ethanol estimates could be 200 to 300 million too high before it is all said and done. To keep corn prices supported we are not only going to need US corn "exports" to pick up but we are also going to need ethanol production to stay around these levels. I would like to believe this is a guarantee, but I am afraid the ethanol part of this equation might be a tougher task than some analyst in our industry are reporting. Keep in mind many US plants are loosing over $0.30 cents per gallon by producing ethanol. The industry as a whole is headed for the first decline in 16 years, and several companies have been forced to close their doors or reduce their run-rates. I know the production numbers are hanging in there I am just a little worried about how much longer they can last in this environment.
As for today, poor export sales in corn and wheat may keep a lid on any major rally, but with the US cash markets remaining strong, I doubt we will see any major sell-off. I believe basis will continue to remain firm well into early 2013 or at least until confirmation of South American production is announced.
***UPDATE***USDA export sales reported this morning showed corn sales within trade expectation, wheat sales were below trade expectations and soybean sales were WAY below trade estimates for the first time in a long time. Below are the specifics:
- Corn export sales reported at 209,400. The trade was looking for a number between 150,000 and 250,000. Last week sales were reported at 167,900.
- Soybean export sales reported at 191,900. The trade was looking for a number between 600,000 and 800,000. Last week sales were reported at 760,600.
- Wheat export sales reported at 220,900. The trade was looking for a number between 300,000 and 500,000. Last week sales were reported at 362,800.
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