In spite of rising corn production, FAPRI projections say corn prices also go up due to increased demand from the growing number of ethanol plants.
The average corn price is $1.98 per bushel for the 2005 marketing year just ending. The price for the crop now growing in the field is projected at $2.33. By 2010 the average price jumps to $2.69 per bushel in the outlook.
FAPRI baseline projections assume normal weather and continuation of current government policies. Both can change, says FAPRI economist Pat Westhoff.
Westhoff pointed out ethanol production rose due to a 51-cent tax credit and a renewable-fuel mandate that 7.5 billion gallons of ethanol, or other renewable biofuel, be used. Current projected ethanol production far exceeds mandated biofuel levels.
Gary Marshall, executive director of the Missouri Corn Growers Association, says, "The renewable fuel mandate provided a floor that gave encouragement to investors in ethanol plants."
The prospect of increasing returns from corn draws more available crop acreage into corn production, Westhoff says.
"The greatest risk for biofuel investments is a downturn in petroleum prices," Westhoff says. "Rising grain prices will likely have little impact on slowing ethanol production. The price of corn would have to get very high before an ethanol plant would shut down."
Abner Womack, co-director of FAPRI adds, "One scenario for lower petroleum prices would be a global economic recession that caused
While outlook for ethanol producers seems promising, there are risks to growers, Westhoff says. "Increased demand and lower carryover stocks could lead to greater volatility in corn prices. Risk management becomes a bigger issue."
"Big questions remain," Westhoff says. "What will happen in a drought year with a short corn crop? Who will bid the most to get the needed grain?"
The revised FAPRI outlook is posted on the Internet at www.fapri.missouri.edu.