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2007 Outlook: Wonderful for Corn Growers

Optimism rules; $5 corn not an impossibility.

"Ethanol" was the most common word in most presentations at Tuesday's Agribusiness Economic Outlook Conference at Cornell University. And rightly so.

The explosive growth in U.S. ethanol production and its demand for corn sparked a historic explosion in the Chicago Board of Trade corn futures trading pit. And as one Cornell economist put it, the ethanol-for-oil energy issue has put the grain and livestock industry into a "whole new ballgame".

That ballgame could last maybe 20 years, guessed Normal Scott, Cornell biological and environmental engineer. "That's purely a guess," he added, "because no one knows for sure. Ethanol is likely a 20-year temporary solution to the energy crisis, as we transition to more efficient sources of renewable energy.

"Renewable energy, including biomass, and conservation will make the energy issue go away," he contended. Farm-generated biogas will have a place in the energy grid. But it's likely to be most economic when integrated with other income-producing systems.

Grain price prospects 'wonderful'

"If you're growing corn, soybeans or wheat, it's going to be a wonderful year." That was Bill Tomek's opening prediction. The Cornell grain economist noted that the corn futures market surge during the last two weeks of November profoundly "up-ticked" average price projections.

Based on an Iowa State University analysis of future ethanol plant growth, corn demand and $60 per barrel crude oil, Tomek thinks average U.S. corn prices for 2007-08 will be close to $4.05, especially in the grain deficit Northeast. For 2008-2009, he's pegging average U.S. corn prices close to $4.20 – the top end projected in the Iowa State analysis.

Tomek concurs with the study that in the longer haul, U.S. corn could average close to $4.05 a bushel. That assumes continued fast-pace development of ethanol plants, extension of the ethanol tax credit and no oil glut. He feels grain prices have risen to a new plateau that will dramatically impact the livestock business.

The up-side price potential for corn is much greater than the down-side price risks, he contends. "If we experience a hot, dry growing season, corn prices could easily sky-rocket to $5 a bushel."
Since ethanol can't be shipped by rail, transportation costs favor plant development in the Northeast. "If we produce the ethanol projected, there will be an unbelievable supply of distillers grains available for feed."

For an expanded "read" on the Northeast's ag outlook, catch American Agriculturist's exclusive two-part report in the January and February issues.

TAGS: USDA
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