Purdue economist Chris Hurt warned that ‘demand destruction” caused by exceptionally high corn prices could create market instability and volatility in the future. If corn users find ways to ration and scale back on corn purchases during a time of tight supplies, a big corn crop could turn the situation upside-down, with supply exceeding demand.
One participant asked Hurt how much of an impact a reduction in corn use for ethanol would have on feed prices, since production of distillers’ grains also would be reduced. Hurt pointed out that when a bushel of corn goes into ethanol production, about two-thirds ends up as ethanol and one-third as distillers’ grains for feed. Shifting that bushel of corn from ethanol to feed use results in a reduction of 18 pounds of distillers’ grains but contributes 56 pounds of corn for feed. And because of the strong relationship between the prices of corn and distillers’ grains, lower corn prices could result in lower prices for distillers’ grains in spite of shorter production.
Read the report or view the Power Point presentation on the Farm Foundation website.