One potential development threatening to douse the red-hot corn market is the looming decision on U.S. ethanol subsidies.
American legislators are debating whether to extend a 45 cent US per gallon excise tax credit that is paid to refiners who blend ethanol with gasoline.
The tax credit, which is the lifeblood of the industry, is set to expire at the end of this year.
Eliminating or reducing the subsidy could have a substantial impact on corn and other grain prices because the ethanol industry annually consumes more than one-third of the U.S. corn crop.
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Industry analysts say the tax credit could be in jeopardy now that the cost-cutting Republicans are poised to gain control of the U.S. House of Representatives.
However, Marlene Boersch of Mercantile Consulting Venture, said it would be politically and financially unwise to cut the tax credit.
She said the subsidy costs U.S. taxpayers $3 to $4 billion annually, although others have pegged the cost at $4.7 billion.
However, strong demand from the ethanol industry has helped elevate corn and competing grain and oilseed prices to where the crops are not triggering loan deficiency payments, a program that had cost taxpayers $7 to $10 billion annually.
Boersch said U.S. ethanol policy also decreases reliance on oil imports, creates jobs in important political states such as Iowa and improves air quality.
“Biofuels make a lot of sense in the United States,” she told delegates attending Agri-Trend’s 2010 Farm Forum Event last week. “We’ll probably see (the credit) stay in place.”
Boersch is bullish on corn and soybeans because of what she believes will be continued robust demand from China, which is keen to keep food price inflation in check.
The Chinese are seeking an agreement with the United States to import another two to three million tonnes of corn and are also in talks with Argentina.
All of these factors should help keep corn prices strong, which bodes well for Canadian feed wheat.
U.S. soybean sales to China have been strong. Last year, the country imported a record 45 million tonnes.
“We think it will be 60 million tonnes this year,” Boersch said, adding she is skeptical about Chinese corn and soybean production numbers.
“Our bias is those production numbers from China will still come down.”
