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Corn+Soybean Digest

Crunch Time Is Coming

I'm sure some people are getting tired of reading about ethanol — while many others can't get enough of it. As a corn producer, this has got to be the most exciting time in history given ethanol expansion, genetic improvements and acreage shifts. History is truly being made.

The number of ethanol plants in production as well as those under construction and those being proposed is a moving target. Our numbers indicate 103 plants are currently operating (with corn as the primary feedstock) and there are about another 10 non-corn ethanol plants operating. The average capacity of those in production is 54 million gallons. Approximately 88 plants are under construction that will produce on average 73 million gallons each, and there are roughly 152 plants on the drawing board that will produce on average 83 million gallons.

More plants are coming online and even more importantly, they are bigger. The question now is: Will all of those being proposed get built? The answer is fairly simple — no.

Already a select few have been pulled off the boards and/or groundbreaking has been delayed. There will be others. Particularly in the eastern Corn Belt, which is already corn deficit, somebody will come to the realization — where's the corn going to come from if the plant gets built? This is a real concern.

Many are already forecasting that even the state of Iowa will be corn deficit in two years — or less — if all the plants being considered get built. Think about states like Indiana, Ohio and New York that are trying to feed a livestock industry as well as feed ethanol plants.

For now, let's not concern ourselves with the plants that are “on the drawing board.” Some will be built, many others will not. What is highly probable, however, is that those currently under construction will get finished. The chart below shows a fairly clear picture of when these plants start to come online.

More specifically, look what happens between the second and third quarter this year. In the second quarter ethanol capacity will increase by about 555 million gallons. But in the third quarter ethanol production jumps over 1.1 billion gallons, which is the equivalent of around 400 million bushels of corn.

In the fourth quarter, the increase in ethanol production will eat an additional 464 million bushels of corn and the first quarter of '08 an addition 520 million bushels of corn. Put another way, in the next 12 months corn needed for ethanol plants will increase approximately an additional 1.7 billion bushels.

I'm starting to sound like a broken record, but no other time in history has planted acreage combined with good yields this summer been more important in the corn market. While all the numbers appear to be obviously bullish, let's not forget that with corn over $4/bu. a large share of this bullish news has already been discounted.

If U.S. farmers plant over 88 million acres of corn this year and have a yield even approaching 160 bu./acre, 2007 will actually be one of the biggest bear markets for corn in history — not a bull.

Parting Thoughts

Bull markets always die hard — but when they die they do so with a thud. This one won't be any different. It will peak when the news is the most bullish, which could well occur before spring planting is complete.

This is the type of a market where it's important to spread your sales and to use some good farm management common sense. There's nothing wrong with taking a profit.

Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit

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