Not since the colonists sat down with the Native Americans to learn how to raise maize have U.S. citizens been so enamored with corn.
Questions about ethanol's contribution to solving our dependence on foreign oil are nearly as frequent as political candidates' promises to support programs aimed at alleviating that dependency through renewable fuels.
In rural America, the late-summer speculation over the price of corn is as predictable as the start of a new football season. But this year, there's the unsettling question of ethanol's impact on corn prices.
With a dutiful eye on crop and yield projections, decisions are being made about when to lock in feed needs for 2007.
The U.S. corn crop is being projected as the third largest in history (near 11 billion bushels), with the second-largest yield on record (just over 152 bu./acre). If we could take ethanol out of the equation, one would think we'd have plenty of corn to go around. But we can't.
According to the American Coalition for Ethanol, the number of ethanol plants has doubled since 2001; just over 100 plants are now operating in the United States. Nearly 50 more plants are currently under construction, and an untold number are on the drawing boards. Some equate this boom to the dot-com craze of the '90s.
Is the ethanol craze a blip on the corn price charts, or is this growth sustainable?
In the Aug. 18, 2006 edition of the Cincinnati Business Courier, Senior Staff Reporter Dan Monk cites a research report from Standards & Poors, the oft-quoted independent provider of risk evaluation and investment research, describing the ethanol industry as “highly speculative.”
S&P is quoted as saying, “The industry's success depends on continued high oil prices, friendly regulatory climates and favorable pricing on corn and natural gas. S&P estimates that the (ethanol) industry will have excess production capacity by 2008.”
Then I read University of Illinois Extension Economist Darrel Good's weekly outlook on corn prices, quoting the average harvest delivery bid in central Illinois at $2.015 on Aug. 18, very near the Commodity Credit Corporation loan rate. Good and others expect the demand for corn to be very strong in the 2006-2007 marketing year. He sets consumption at over 11.8 billion bushels.
Will market prices offer corn growers ample incentive to increase crop acreage next year? If not, the short- and long-term profit picture in the pork business could get a little dicey.
Sow Count
Some are wondering if this corn talk is spawning a bit of pessimism in the pork industry.
University of Missouri Economists Glenn Grimes and Ron Plain note that the U.S. sow slaughter between early March and Aug. 5 was 127,000 higher than the previous year. And gilt slaughter appears to be running ahead of last year, too. Canadian sows were removed from the data.
That's left the Grimes-Plain team asking — “What's up with that?”
“Is it possible that we are reducing the size of the breeding herd with the average producer with 30 consecutive months of profit and still counting?” they ask.
Grimes sets the odds of that as “near zero.”
The only other explanation is that some of the USDA's breeding herd data is incorrect. The September Hogs & Pigs report will help clarify that.
On the positive side, Statistics Canada recently reported the Canadian sow herd is smaller than a year ago for the third consecutive quarter. That's important, because 75% of the growth in the North American pig crop between 1993 and 2004 occurred in Canada.
“A slowdown in the expansion of the Canadian sow herd will go a long way towards bringing stability to production,” Grimes and Plain agree.
Stay Tuned
Ethanol demand will be driven by several factors — consumer acceptance, government support, conditions in the Middle East, the next election.
The answers to the ethanol and pig crop questions will come — but your challenge is to stay ahead of the curve. There are many smart market watchers who keep tabs on both industries every day. If you're not inclined to add that to your daily tasks, I'd suggest tapping into the wealth of expertise they offer.
