"High wheat and soybean prices provide more competition for corn
acreage than in 2007, implying that corn prices will remain high
in order to ensure adequate acreage," said Darrel Good.
comments came as he reviewed corn prices.
"The run-up in corn prices that started in the fall of 2006
has been driven primarily by a significant increase in demand,"
he noted. "That demand strength persists."
Initially, the demand strength was related to increased
ethanol use of corn. The amount of corn used for ethanol
production increased from 1.6 billion bushels in 2006-06 to
2.117 billion in 2006-07.
"Ethanol production continues to expand, although at a slower
pace than expected a few months ago," he said. "Ethanol
production margins became very tight in late September but have
rebounded over the past two months."
The USDA's Agricultural Marketing Service collects
information on ethanol prices, dried distillers grain prices and
corn prices at ethanol plants in Iowa and Nebraska. Using those
prices and an estimate of product yields, an estimate of gross
processing margins can be calculated. The calculated average
gross margin at Iowa plants, using this methodology, was well
over $3 per bushel during July 2007 but declined to as low as
$1.72 per bushel in late September.
"The lower gross margin suggested that some plants were not
covering all costs of production," said Good. "The low margins
reflected higher corn prices and much lower ethanol prices.
"The average price of ethanol at Iowa plants was reported at
$1.95 to $1.98 per gallon in July but declined to $1.49 per
gallon in late September and early October. Ethanol prices
became very low relative to the prices of unleaded gasoline."
In August 2007, the average rack price of ethanol in Omaha,
Neb., was 10 cents per gallon higher than the average rack price
of unleaded gasoline. In October, the average ethanol price was
45 cents lower than the average price of gasoline.
"The low price of ethanol was explained by bottlenecks in
transporting and blending ethanol," he said. "At such low
prices, however, ethanol became a much cheaper source of fuel
than unleaded gasoline. By Nov. 30, the USDA reported that the
average price of ethanol at Iowa plants recovered to $1.87 per
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"In addition, the price of dried distillers grain increased about
$20 per ton from Oct. 19 to Nov. 30. Even though the average price
paid for corn at Iowa plants increased by 39 cents per bushel during
the same six-week period, the calculated ethanol crush margin
rebounded to $2.80 per bushel on Nov. 30. As long as crude oil and
unleaded gasoline prices remain high, ethanol prices are expected to
remain high enough to generate positive crush margins."
Corn has experienced a large surge in export demand in addition
to strong demand from ethanol production. That increase in export
demand began in early 2006. U.S. corn exports reached a 10-year high
of 2.134 billion bushels in the 2005-06 marketing year, came in at
2.125 billion bushels last year and are projected at 2.35 billion
bushels this year.
Export sales of U.S. corn are currently proceeding at a more
rapid pace than suggested by the projection of exports for the year.
As of Nov. 22, the USDA reported that 1.353 billion bushels of corn
had been exported or sold for export this year. That is 58 percent
of the projected total for the year and exceeds last year's
commitments by 36.5 percent.
While actual exports through Nov. 29 were only 12 percent larger
than in the previous year, unshipped sales are up 64 percent. Japan,
South Korea, Egypt and Mexico account for the majority of the
increase in sales.
"Prospects for U.S. corn exports remain strong due to the likely
decline in Chinese corn exports and continued expansion in world
feed demand," Good said. "Both Brazil and Argentina have expanded
corn acreage, production and exports since 2005-06."
For the current marketing year, the USDA expects combined exports
from those two countries to reach 945 million bushels, compared with
1 billion bushels last year and only 550 million bushels two years
"However, recent dry weather in Argentina and parts of Brazil
poses some threat to those crops and should keep buyers very
interested in U.S. corn," he said.
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental