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Cheaper feed prices on horizon

A surge in surplus U. S. corn supplies due to sluggish demand from an ailing ethanol sector and the economic turmoil portends weaker prices, but could provide some relief to the food and livestock industry.

The U. S. Agriculture Department took traders and analysts by surprise Dec. 11 by reducing the amount of corn to be used by the ethanol industry by 300 million bushels, to 3.7 billion, in the 2008-09 marketing year that began Sept. 1.

The forecast came at a time when U. S. corn prices have tumbled from a record high $7.65 a bushel set in June to $3.41 on Thursday, slumping 55 per cent.

“We knew (corn) demand was sinking. This took a knife to the balance (sheet) table. This puts an anchor on the corn market,” said Don Roose, analyst, U. S. Commodities.

U. S. corn export sales in the current marketing year are down 48 per cent from last year amid the availability of cheap wheat that is being used to feed livestock.

The lower prices for corn could, however, provide some relief to meat companies that suffered when prices surged.

Corn is the foundation for the U. S. ethanol industry and four billion bushels, or roughly a third of the total corn crop of 12 billion bushels, had previously been pencilled in by the USDA to be used by ethanol makers.

Now, the USDA says, only 3.7 billion bushels will be converted to ethanol, down 7.5 per cent but still nearly 25 per cent more than the amount of corn converted to ethanol fuel this past year.

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