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Ethanol Production Boosts Demand For Corn

The USDA released a report Jan. 12 stating that corn crops will be the tightest than ever before, Mike Krueger, host of the “Money Farm” told farmers attending the 2011 Ag Days.

“The single biggest thing that has changed the corn market worldwide and certainly our market is ethanol,” said Krueger.

Ethanol production has increased over the past five years and most ethanol plants are running at 110 to 120 per cent of production capacity.

Five years ago, 1.6 billion bushels, 10 to 15 per cent of the U.S. crop, went into ethanol production. This year, the USDA is reporting that more than 4.9 billion bushels, 40 per cent of U.S. crops, will go into ethanol production, an increase of 100 million bushels of corn.

This year, the U.S. was relying on getting a majority of its ethanol supply from Brazil, using low-grade sugar cane. However, with sugar reaching 30 cents a pound, Brazil has now diverted ethanol sugar cane production back to sugar and is now importing corn.

China will be a huge factor in the corn market in the next couple of years. Traditionally it has had enough supply, but soon will have to buy corn. “Most people assume that China will become a net corn importer in the next 12 months,” Krueger said. He said the USDA reports that China will import a million tonnes this year.

Currently China is responsible for 50 per cent of the world corn production, but its production is not keeping up with consumption. By 2015, he said some people estimate that China will have to import about 15 million to 20 million tonnes of corn.

“With the U.S. and Argentina, and to a lesser extent Brazil, being the three countries left with an exportable amount of corn and when our ending stocks are down to 700-plus million this year, if China comes in, in the next seven or eight months and buys 100 million or a 150 million bushels of corn, two million or three million tonnes, we don’t have the corn there to give it to them. It takes us down to bin bottom.”

Krueger said his colleagues feel even though corn production is tight the U.S. government will not interfere in the marketplace unless there are midsummer production problems.

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