The supply of corn keeps getting smaller

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675 million bushels of corn may seem like a lot, but that is only an 18 day supply for the US grain market, and that is the reason corn prices pushed above $7 Wednesday on the CME. March corn did not close above that level, but settled at $6.98 per bushel following USDA’s February Supply and Demand report that indicated the ethanol industry was refining corn faster than previously thought.

Corn, beans and wheat prices have all been rising, but so has the price for ethanol. A year ago, ethanol was in the $1.70 per gallon range, but Wednesday closed at $2.457 per gallon, the highest it has been since the early summer price spike in 2008 when it exceeded $2.80 per gallon.

The result of the ethanol industry’s demand for corn tightens down the supply, says University of Missouri marketing specialist Melvin Brees. In his Crop Report Commentary Brees says USDA economists raised corn use by 70 million bushels and 50 million of that was added to ethanol refining. The 745 million bushel ending stocks were lowered to 675 million, and that is 5% of the expected use for the current marketing year. Actually it parallels the tight corn supply of the 1995-96 season and is the least stocks to use ratio in the past 50 years.

USDA also cut back its estimate of global corn stocks to a 54 day supply, which is the least in 37 years, and may continue to ratchet that down as the droughty Argentine yields are known. The global estimate is now 122.5 MMT, which is a continuation of the lower estimates for feed grain supplies around the world. Brees says the USDA raised its estimate of the price range for the 2010 corn crop to $5.05 to $5.75. While much higher prices for corn currently are being offered, market analysts say the bulk of corn was sold at lower levels, pulling down the overall season average, with little free supplies left to be marketed.

As corn prices continue to push higher, so will soybean prices, in an effort to keep pace with the spring race to buy acres. While the USDA did not change any of the soybean supply and demand projections, March soybeans closed 16.75 cents higher on the day and November beans close 19.5 cents higher, but did not push through the $14 mark for new crop beans. Since USDA retained its 140 million bushel estimate of the 2010 carryout, global soybean stocks held steady. Declines in the Argentine bean crop were offset by increases in the Brazilian bean crop. Currently, the season average for soybeans is estimated from $11.20 to $12.20

Wheat supply and demand data was also frozen from the January report, and carryout from the 2010 crop is at 818 million bushels. USDA did make minor changes in the global wheat balance sheet, but global ending stocks were retained at 177.77 MMT. USDA economists tightened up the estimated price range for wheat from $5.60 to $5.80.

Brees says, “Tight supplies of corn and soybeans will likely continue to support the market as long demand remains strong and 2011 production remains uncertain. Most analysts will continue to anticipate the USDA Prospective Plantings report in March for new crop production potential. But the uncertainty won’t end there; actual plantings and growing season weather will remain as market concerns on the supply side. It also will be important to watch for signs that higher prices that may begin to curtail use. These factors, along with other market forces (dollar value, energy prices, the economy, etc.), suggest market volatility will continue.” The next USDA Supply Demand report will be March 10.

The February Supply Demand report from USDA highlighted the continuing demand for ethanol and the subsequent increase in corn being refined at ethanol plants. Corn carryout from the current marketing year is now at 675 million bushels, which is 5% of the use and that is a 50 year low. The USDA left the supply-demand figures for beans and wheat unchanged, and tightened up the estimated price range for all three crops.

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Lydia Johnson    
Ames, Iowa.  |  February, 10, 2011 at 10:33 AM

Ethanol is not a fuel alternative option. It is unsustainable and inefficient.

galt ca  |  February, 10, 2011 at 04:23 PM

Why do the corn farmers allow this to happen (Ethanol) ='s greed is the word, corn feeds people not vehicles, look at all the items that contain corn, the packages are shrinking the price is increasing and families are losing homes and can't feed their families and let's knock on the government's door for handouts (Food stamps, wic, susidies etc.) What a cycle? Let's make the dairymen pay for high corn to feed their cows. Let's make them go out of business. The dairymen have no control on their product (MILK) look at all that happened to them in 2008, 2009, 2010 and look at how high corn, hay and other commodites. The consumer, when milk prices are low for the dairymen, THE STORES continued to price dairy products high, and allowed non dairy products to be in the same (DAIRY CASE OR ISLE), look they don't belong there, almond milk doesn't come from a COW. Look at the GAS stations and the prices, look at diesel prices and bio-diesel prices they stand to be the same price, what benefit has ETHANOL presented.

Wyoming USA  |  February, 14, 2011 at 12:16 PM

Any nation stupid enough to burn ANY of it's food supply has a real problem with leaders who pass these insane laws !

90802  |  February, 14, 2011 at 06:20 PM

Maybe we wouldn't have a corn shortage if those boneheads would only stop burning it for fuel? Ethanol is inefficient as a fuel, even on a good day.

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