14 May 2007Planet ArkCharles Abbott
Even with its projection of a record 12.46 billion-bushel corn crop this year, the Agriculture Department said US stockpiles will run low going into the next crop year when voracious ethanol demand will rise again.
"We keep our head just above water (this year). We've got to swim that much harder in 2008," said analyst Mark McMinimy of Stanford Washington Research.
Some 3.4 billion bushels of corn -- enough to make 9.3 billion gallons -- will be used by ethanol distillers in the marketing year opening on Sept. 1, said USDA, compared with 2.15 billion bushels or 20 percent of the 2006 crop.
US ethanol output is on track to double to more than 12 billion gallons a year by the end of this decade. There are 117 distilleries in operation now in the United States with annual capacity of 6 billion gallons. Projects with 6.5 billion gallons of capacity should be completed within two years.
Ethanol is transforming the corn market and boosting crop prices across the board, USDA said in its first projections of this year's crops and usage. It forecast a record average farm-gate price of $3.40 a bushel for corn -- 16 cents above the mark set in 1995/96, the last time US supplies ran low.
"For the first time, ethanol use is projected above exports," said USDA, and less corn will be used as livestock feed. Exports would fall by 10 percent from this year's levels, to 1.975 billion bushels, because of high prices, and feed use by 3 percent.
Distillers grains, an ethanol byproduct, will replace some of the corn in livestock rations, said USDA.
"I don't see a red flag in this," said Keith Collins, USDA chief economist, in discussing the corn outlook.
"It's a tight market, there is always concern about bad weather this summer. But I think this is a market that is certainly manageable for both our crop and livestock industry," said Collins.
Rainy and cold weather during April delayed corn planting in the US Midwest. Because of the delays, USDA projected an average yield of 150.3 bushels an acre, down 2.5 bushels from its initial figure. Corn planted late yields less grain per acre than early planted corn.
Farmers say they will plant 90.5 million acres of corn this spring, the largest sowings since 1944.
The biofuels industry has surged since a 2005 law guaranteed use of at least 7.5 billion gallons a year of renewable fuels by 2012. Some skeptics question if there is a market for ethanol beyond the federal mandate.
"It doesn't look likely that you would have an oversupply of ethanol," said Agriculture Secretary Mike Johanns during a news conference.
A trade group, the Renewable Fuels Association, estimates ethanol production of 9.5 billion-10 billion gallons during 2008. Some 14 billion gallons would be needed for every gallon of US gasoline to contain 10 percent ethanol, said RFA spokesman Matt Hartwig.
"There's lots of room to grow there," said Hartwig. There also is the potential for higher blend rates or to export ethanol, he said.
Corn futures prices zoomed at the Chicago Board of Trade. Corn for delivery in December was up 18 cents at the end of trading, to US$3.74-1/2 a bushel. November soybeans closed at US$7.90-3/4, up 15-1/4 cents a bushel, and July wheat was up 11-1/2 cents a bushel, at US$4.93.
(Additional reporting by Chris Baltimore and Tom Doggett in Washington)
