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Big Corn Crop May Not Curb Prices
Published in Saudi Press Agency on 01 - 04 - 2007

Strong demand for ethanol and poor spring weather could keep corn prices high over the next few months, even though the government estimated Friday that this year's corn crop could be the largest it has been since 1944.
Fueled by a booming demand for corn-derived ethanol, corn farmers across the nation are expected to plant 90.5 million acres of corn this year, according to the U.S. Department of Agriculture's Planting Intentions report. With projected yields at 152 bushels per acre, the final corn harvest could amount to the largest on record, according to the National Corn Growers Association. At the same time, soybean acreage is expected to be sharply down.
The market reacted immediately Friday morning, fearing that a large crop would flood the market with corn. At the Chicago Board of Trade, corn prices fell 20 cents -- the daily limit -- to $3.745 a bushel.
But several factors make it less likely that corn prices will drop much further. Demand for corn-based ethanol is projected to remain strong, especially as more ethanol plants come online in the U.S. and as oil prices continue to hover around $66 a barrel.
There are currently 114 ethanol plants in the U.S., with another 80 under construction, according to the Renewable Fuels Association, the trade group for the U.S. ethanol industry. At the same time, total ethanol capacity is expected to increase to 8.5 billion gallons this year, up from 5.4 billion gallons last year. In addition, corn exports are soaring, which could help keep corn prices high, at least in the near term.
All of that means ethanol will keep soaking up more kernels of corn. Ethanol is expected to consume 3.2 billion bushels of corn from the 2007 crop, compared with 2.15 billion bushels of the crop last year, says Keith Collins, chief economist at the USDA. But Mr. Collins says that while ethanol will continue to "put pressure on our land base to keep finding ways to produce more corn," the crop report is a good sign that corn farmers are responding to market signals and planting more corn.


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