Turning a corner: Corn demand on rise, supply remains steady

Wednesday, May 31, 2006

From staff and wire reports

Gordonville farmer John Lorberg and his son Jeff originally planned to plant a 28-acre plot near Hubble Creek in soybeans before demand from ethanol producers boosted corn prices and changed their minds.

Tuesday the Lorbergs were installing an underground drainage and irrigation system they say will increase their corn yield to up to 200 bushels per acre -- about 75 bushels per acre more than an unirrigated field.

When the Lorbergs were planning their production earlier this year, the prices of fertilizer and fuel had them leaning toward soybeans on the newly irrigated field. But a slight easing of costs along with a December futures price of $2.80 per bushel for corn -- up from $2 a bushel in recent years -- prompted the switch, even though most of Missouri's corn has already been planted.

The Lorbergs raise soybeans and corn on the 900 acres they farm.

The high costs of fertilizer and fuel coupled with prices that had remained almost unchanged for several years depressed farmer estimates in March for the number of acres they would plant in corn. The Agricultural Statistics Service of the U.S. Department of Agriculture estimates that Missouri growers will plant 2.75 million acres of corn this year, down from 3.1 million in 2005. Most of the difference, farmers said when surveyed, would be planted in soybeans.

Nationally farmers are expected to grow about 10.7 billion bushels of corn during the current season, while total consumption is expected to hit about 11.5 billion bushels, according to figures from The ProExporter Network research firm based in Olathe, Kan.

That difference is expected to cut surplus stocks in the U.S. to about 1.2 billion bushels next year from the current excess supply of 2.26 billion bushels, said Marvin Brees of the Food and Agricultural Policy Research Institute at the University of Missouri.

Analysts say corn prices will remain elevated as the surplus dwindles and state mandates for using ethanol blends and new federal mandates for renewable fuels take effect. The 2005 Energy Policy Act requires the U.S. to use 7 billion gallons of renewable fuels by 2012, including ethanol and other fuels like biodiesel.

The tightening of supplies along with the rising cost of ethanol -- it reached $3 a gallon last week on speculation that demand was outstripping supply -- has some people wondering if a crucial food crop should be used for fuel.

Energy consultant Hank Williams said a boom in new ethanol plants means that half the U.S. corn crop could go toward supplying fuel companies within five to six years. A planned Sikeston plant that will produce 100 million gallons of ethanol annually will consume 35.6 million bushels of corn.

While farmers might increase corn production, Wall Street investors could outpace them by building more ethanol infrastructure, said Williams, with Jim Jordan & Associates in Houston. That could put a pinch on food supplies while making ethanol prices vulnerable to drought or other agricultural wild cards.

But corn farmers like Elmer Martin find no need to question whether ethanol is the proper use for corn.

"We're just scratching the surface of how much corn we could raise in this country if it was profitable," said Martin, who farms 400 acres of corn near Thompson in central Missouri.

Farmers like Martin say demand from a budding ethanol industry has created a situation they haven't seen since at least 1995. Corn supplies appear tight. Prices spiked this spring and don't show signs of dropping soon.

"This doesn't happen often," said Ken McCauley, a farmer and incoming president of the National Corn Growers Association. He was almost giddy in describing the outlook for a commodity that has seen its price slide steadily over the last decade.

For a corn farmer, "This really does it for you," McCauley said with a big smile.

Rick Tolman, chief executive officer of the corn growers association, said higher corn prices will spur farmers to plant more corn. They can easily do that by switching acres of soybeans, sorghum or other crops to corn production, he said.

"This whole scenario is going to make more production and more (corn) acreage out there," Tolman said.

This doesn't mean there will be a corn shortage. There has been a surplus every year since at least 1975, according to ProExporter. The firm predicts annual surpluses of corn through at least 2016.

In spite of the surpluses, ProExporter predicts corn prices will steadily increase over the next decade but won't go higher than a yearly average of $2.84 a bushel.

As a globally traded commodity, corn has a long history of boom and bust prices. Tolman said there's a predictable pattern -- prices are high one year and too much corn gets planted the next. Prices drop, and farmers find themselves back at square one.

But federal guidelines for fuel production will help keep corn prices stable, Tolman said. The 2005 Energy Policy Act requires the U.S. to use 7 billion gallons of renewable fuels by 2012, including ethanol and other fuels like biodiesel.

"Our demand is going to go up every year -- we know it," Tolman said.

For that reason, Tolman said the corn growers association will continue to support growth of ethanol use, which has delivered price increases for corn farmers for the first time since 1995, when a drought pushed prices as high as $5 a bushel.

That's good news for farmers, but it isn't exactly a bonanza.

Martin, for example, isn't elated with recent price jump that put corn at $2.50 a bushel. That's how much it costs to simply buy, plant and fertilize the crop, he said. Rising oil prices have made gasoline more expensive but have also made petroleum-based fertilizer more costly.

"It's just a dollar too cheap. The corn needs to be three dollars and a half to make money," he said.

On the Net:

National Corn Growers Association: www.ncga.com

The ProExporter Network: www.proexporter.com

Staff writer Rudi Keller contributed to this report.

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