Ethanol Appetite To Take Big Bite

The ethanol industry’s appetite for corn is going to surge in the coming months and producers will likely lower corn acreage for the 2008 crop, says a Purdue University expert. What does this mean for your corn growers?

"This has two major implications," explains Chris Hurt, Purdue Extension agricultural economist. "First, the corn-based ethanol industry will have excess production capacity and therefore narrow margins, and at times negative margins, for periods during the next two years.

"Secondly, corn prices will be historically high for the recently harvested 2007 crop and for the 2008 crop, and perhaps the 2009 crop too," he says. "We’re looking at corn in the mid-to-high $4 range."

As of Dec. 18, total ethanol production annually in the U.S. was 7.3 billion gallons, according to the Renewable Fuels Association (RFA). An additional 6 billion gallons of capacity from plants under construction are expected to come online in 2008 and be added to the 7.3 billion gallons.

"The most rapid period of new plant openings will occur in the first half of 2008 when we estimate the nation’s annual capacity will surge from the current 7.3 billion gallons to 11.8 billions gallons," Hurt says. "This means the amount of corn required annually to feed that capacity grows from about 2.5 billion bushels today to 4 billion bushels by July of 2008."

Hurt predicts the rate of new plant openings will slow in the later half of 2008, where an additional 1.7 billion gallons of capacity will come online, which pushes the RFA numbers up to 13.5 billion gallons. "This will require about 4.5 billion bushels of corn if these plants are to run at full capacity," Hurt says.

Not only will ethanol be competing for corn in 2008, but so will other crops. "All major crops are in short supply in the world and some will outbid corn for acreage," Hurt explains. "The shortest of the major crops are wheat and soybeans and the prices are expected to drive acres away from corn in 2008. Assuming a 6 percent decline in 2008 acres, U.S. production would drop to 12.4 billion bushels with a usage base at about 13.3 billion. This means there will be a need to ration the small crop with high prices."

Hurt says as a result it’s likely the ethanol industry will have to cut usage below the 4.5 billion bushels (the level of full capacity) to a rate closer to 4 to 4.1 billion bushes.

"If so, this means the nation’s ethanol plants might run at levels that are about 10 percent to 12 percent below full production, or 88 percent to 90 percent of total production capacity," he says. "This also implies that cash corn prices will need to be high enough to convince some ethanol producers to run at less than full capacity.

"Given the outlook for $2 plus per gallon ethanol prices and $160 per ton distiller’s grains into the fall of 2008, implies we will be seeing cash corn prices in the $4.25 to $4.75 range," he says. "It will not be until 2009 when corn production may be able to meet the demand."

(Source: Purdue University)
 

Topics:

Leave a Reply

Management Stories

ManagementMACA 2014: The State Of The Agricultural Industry, And Then Some
October 9, 2014
The trade association’s annual gathering featured speakers from across agriculture and beyond. Read More
StewardshipA Multi-Layered Approach To Water Quality
October 6, 2014
Illinois event highlights research and technology designed to better monitor and improve water quality — and the benefits of cooperative, coordinated effort. Read More
StewardshipMichigan Agriculture Leaders On Toledo Water Ban: We Want To Be Part Of The Conversation
August 8, 2014
Leaders of Michigan agricultural organizations said Thursday that the government should not have a “knee-jerk reaction” based on last weekend’s water ban in Toledo due to fertilizer run-off in Lake Erie. Read More
ManagementRussia Bans U.S. And EU Ag Product Imports In Ukraine Sanctions Battle
August 7, 2014
Russian President Vladimir Putin has banned the import of agricultural goods from countries that have imposed sanctions on Russia. Read More

Trending Articles

Crop InputsPlatform Specialty Products To Acquire Arysta LifeScience
October 20, 2014
Once the acquisition is complete, Platform Specialty Products will combine Arysta LifeScience with previously acquired companies Agriphar and Chemtura Crop Solutions. Read More
Seed/BiotechMonsanto Offers New Support For Ferguson, Area Communities
October 8, 2014
Monsanto Co. has committed $1 million in new support for several collaborative efforts in Ferguson, MO, and surrounding communities in North St. Louis County. Read More
Seed/BiotechUnapproved Genetically Modified Wheat Found In Montana
October 3, 2014
USDA reports that one year after discovery of Monsanto's unapproved wheat in a single Oregon field disrupted U.S. wheat export sales, the GMO wheat has again been found in Montana. Read More
Equipment2014 Product Of The Year Voting
September 19, 2014
The deadline to vote for the 2014 CropLife IRON Product of the Year is October 31. Please cast your vote today to help us determine the winner. Read More
FertilizerFall Fertility 2014: Forecasting Fertilizer Use
September 7, 2014
Great crops this year have tapped the soil, and fall work is definitely called for, but how challenging will that get? Read More
CropLife 100CHS To Build $3 Billion Fertilizer Plant In North Dakota
September 5, 2014
The fertilizer plant in Spiritwood will be the single largest investment in CHS history, as well as the single largest private investment project ever undertaken in North Dakota. Read More

Latest News

CropLife 100GROWMARK Announces Appointments In Plant Food Division
October 22, 2014
GROWMARK, Inc. has announced the three key staff changes in its Plant Food Division. Read More
CropLife 100GROWMARK Appoints New VP Of Finance And Risk Management
October 22, 2014
Wade Mittelstadt has been named GROWMARK Vice President, Financial and Risk Mangement, effective December 1, 2014. Read More
FungicidesEPA Approves BASF In-Furrow Corn Fungicide
October 22, 2014
Field trials show Xanthion In-furrow fungicide provides more rapid emergence, extended residual control and improved seedling health than untreated crops. Read More
EquipmentAgraScout App Available At No Cost To Universities
October 21, 2014
AgraScout, a fast and easy to use mobile crop scouting app, is now available at no cost to University students, Read More
LegislationNew Farm Bill Program To Provide Relief To Farmers Affe…
October 21, 2014
The USDA has implemented a new Farm Bill initiative that will provide relief to farmers affected by severe weather, including drought. Read More
ManagementGreenfield Scholars Program Aims To Sustain Agronomy Wo…
October 21, 2014
The program encourages talented students to study agronomy, crop and soil sciences while cultivating networks to develop the necessary workforce to sustain the profession. Read More
Paul SchrimpfPrecision Ag: Taking It To The Hill
October 21, 2014
A new coalition took the good news message of precision agriculture to Washington, DC, last month. Read More
ManagementUSDA Awards $18 Million In Small Business Research Gran…
October 21, 2014
The grants will provide high quality, advanced research and development that will lead to technological innovations and solutions for American agriculture. Read More
FertilizerCF Industries Terminates Merger Discussions With Yara I…
October 21, 2014
CF Industries Holdings and Yara International have terminated their discussions regarding a potential merger of equals transaction. Read More
Seed/BiotechSyngenta Ranked A Top 10 Biotech Employer For Third tim…
October 20, 2014
Syngenta ranked in the top 10 among the world’s top biotech employers, according to an annual survey conducted by Science magazine. Read More
CropLife 100Wheat Growers Break Ground For New Facility At Kennebec
October 20, 2014
Wheat Growers has broke ground for a state-of-the-art shuttle loader grain handling, fertilizer and agronomy facility in Kennebec, SD. Read More
FertilizerVerdesian Life Sciences Signs Agreement With Los Alamos…
October 20, 2014
Verdesian Life Sciences has signed a licensing agreement with Los Alamos National Laboratory to develop and market LANL’s latest nitrogen enhancement technology for plants. Read More
MicronutrientsStoller Group Announces Groundbreaking At New Office Bu…
October 20, 2014
Jerry Stoller, founder and president of Stoller Group, announced the groundbreaking at the site of the company’s future headquarters in Read More
Crop InputsBioSafe Systems Opens New Production Facility In Nevada
October 20, 2014
BioSafe Systems has completed construction of a state-of-art production facility in Sparks, NV, for its line of activated peroxygen products. Read More
Crop InputsPlatform Specialty Products To Acquire Arysta LifeScien…
October 20, 2014
Once the acquisition is complete, Platform Specialty Products will combine Arysta LifeScience with previously acquired companies Agriphar and Chemtura Crop Solutions. Read More
Seed/BiotechEPA Approves Dow’s Enlist Duo Herbicide
October 15, 2014
The Enlist Weed Control System, breakthrough technology to fight resistant and tough weeds, has received the long-awaited green light from federal regulatory authorities. Read More
MicronutrientsGypsum On Farms Could Help Keep Water Clean, Not Green
October 14, 2014
Gypsum, which has roots in the past as a farm soil treatment, also may have a bright future, and not just as a booster of crops but also as a protector of water. Read More
Photo credit: The United Soybean Board/The Soybean Checkoff.
Crop InputsVerdesian Grows Sales Staff
October 14, 2014
The new account managers will drive sales growth and support relationships with key customers in the plant nutrition and seed treatment and inoculants product categories. Read More