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Corn+Soybean Digest

Ethanol usage vital to corn prices

Corn usage for ethanol will likely be 4% to 6% higher for the current 2013-2014 marketing year compared to last year, according to Bob Wisner, retired Iowa State University Extension grain marketing specialist. But it’s more in the fuel end of corn usage through the ISU Ag Marketing Resource Center.

“Another small increase may occur in the 2014-2015 marketing year when the 2014 corn crop is harvested,”he says.  “However, the period of rapid growth in corn processing for ethanol and DDGS has ended, at least for now.” 

Wisner says that’s because the ethanol market has reached the E-15 blend wall and gasoline use is trending down.  “Lower prices for ethanol may begin to stimulate demand for E-85, setting the stage for some future growth in corn use for ethanol,”he says.  “Also, lower ethanol prices than in the last few years may encourage increased ethanol exports.”

He says that for 2013-2014, ethanol and its byproducts should use up to 5.15 billion bushels of corn. “That compares to about 5.27 billion bushels for feed and residual, 1.45 billion bushels for food, industrial and seed usage and 1.3 billion bushels for export,”Wisner says.

Those numbers can vary, especially with variations on overall production. With the E-10 requirements set in renewable fuel standards (RFS), those numbers for ethanol production should remain strong and have a big impact on corn prices. And corn prices will also have big impacts on ethanol prices, according to Scott Irwin, University of Illinois economist.

“The E-10 blendwall not only has profound implications for the implementation of RFS mandates, but also for market price relationships,”says Irwin. “As long as the E-10 blendwall is binding, the price of corn drives the price of ethanol.

“This is a reversal of the relationship between ethanol and corn prices that has been in place for much of the ethanol boom. It has the further implication that the pricing of corn at the margin is now primarily determined in the domestic and foreign feed grain markets.”

All of this will be impacted by planted acres for 2014. Darrel Good, University of Illinois economist, says many believe acreage will shift from corn to soybeans, as the current corn harvest may result in a substantial build-up of inventories and low corn prices in relation to soybean prices.


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“That is certainly the current situation for old crop prices,”he says. “The ratio of November 2013 soybean futures to December 2013 corn futures is near 2.9. However, planting decisions should be based on new crop prices. 

“The current ratio of November 2014 soybean futures to December 2014 corn futures is about 2.4. New-crop soybean prices are at a discount to old-crop prices while new-crop corn prices are at a premium to old-crop prices. The lower new-crop price ratio may reflect the expected acreage shift, but in fact discourages such a shift.”

Good notes that if corn acreage remains large in 2014, “the combination of trend yields and a very mature market for U.S. corn would result in a further build-up of inventories next year. 

“Under that scenario, corn prices would be lower next year, not higher as currently reflected in the market.”

TAGS: Energy
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