Booming ethanol production in the United States is changing long
established fundamentals of the corn market.
The price of U.S. corn is expected to rise a little in the new crop
year, despite factors that normally depress prices.
The U.S. Department of Agriculture forecasts corn seeded area will
climb to 78.5 million acres, up 3.6 percent.
USDA expects total production to reach 9.86 billion bushels, up from
9.51 billion last year.
Domestic feed use is expected to be down by 100,000 bu. to 5.75 billion
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USDA’s August corn yield estimates are bearish
The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
due to reduced demand from the smaller beef cattle herd.
But the USDA is not down on prices. With lower carry-in stocks, the
total amount available is expected to be about the same.
The other factor is increased use of corn in ethanol production.
USDA expects food, seed and industrial use will climb 10 percent to
2.25 billion bu.
Uses in sweeteners, cereals and beverages should edge up, but corn used
in ethanol production is expected to jump by 30 percent to 890 million
bu.
One reason is the 2002 $150 million US Bioenergy Program that pays
incentives to ethanol producers.
More importantly, California has a deadline of Dec. 31 to eliminate
methyl tertiary butyle ether or MTBE from its gasoline. MTBE adds
oxygen to fuel to make it burn cleaner, but it has been found to leak
from underground storage tanks and contaminate wells.
Replacing MTBE with ethanol, another oxidant, would require so much
ethanol there is a debate in California over whether ethanol makers can
produce enough and get it to the state in time.
New York state is planning to ban MBTE in 2004.
Forthcoming federal legislation might boost ethanol even more.
The bill, The Energy Policy Act of 2002, has the potential to triple
renewable fuel use in the U.S. to five billion gallons US by 2012.
New technologies creating ethanol from biomass such as straw and wood
chips are just around the corner and might capture a significant part
of this growing ethanol market.
But a lot will come from corn, which will increase demand and support
prices, with estimates of $2.50-$2.60 US per bu. by the end of the
decade.
Given that barley prices are strongly influenced by corn, this could
have implications for Canadian farmers and feedlots.
