Storing corn may be best bet for securing better price later

Corn prices have been generally depressed in the last 12 months due primarily to slack export demand and big supplies in the United States.

But Purdue University economist Chris Hurt thinks that while corn might not return to the heady $6 to $7 range it saw in 2008, rising demand may give it the same kick in 2010 that soybeans enjoyed last year when China made heavy purchases.

"We know that from two aspects, one of them being biofuels. Ethanol production will continue to grow in 2010 and 2011. And, secondly, as the world economy recovers, we're going to see more demand for U.S. corn exports," Hurt said.

With the increased demand, Hurt said storing the corn crop might be the best pricing strategy.

"As we talk about price levels, and of course this will vary by location, but it feels like we will probably see corn prices get back above $4 per bushel at some point," he said. "Storage seems to be the best strategy on corn from this point because there are very good prospects for an overall increase on corn prices."

Because 2009 was a record corn yield year in the United States, Hurt said that while prices may increase to $4, farmers likely wouldn't see corn return to extremely high prices.

Hurt's prediction is at mild variance with U.S. Department of Agriculture forecasts issued in November, which have 2010 corn prices in the $3.25 to $3.85 per bushel range.

Ethanol profits are up to 45 cents a gallon

News that Hawkeye Energy put two of its four plants into bankruptcy last week overshadows news of greater profitability for ethanol producers.

Iowa State University Extension's monthly survey of ethanol costs and returns, based on averages, shows that in November a gallon of ethanol produced a 45-cent profit, up from a 24-cent per gallon profit in October.

That's a far cry from the $2 per gallon margin ethanol producers enjoyed in the first flush of the ethanol boom in mid-2006. But it beats losses that reached as high as 21 cents per gallon in May 2009.

"It will be hard for our producers to make a profit for the whole year because of the losses in the first half of 2009, but the trend certainly is welcome," said Monte Shaw, executive director of the Iowa Renewable Fuels Association.

For most of the last half of 2009, ethanol producers probably have enjoyed the best alignment of oil and corn prices in a couple of years. Refined unblended gasoline has traded around $2 per gallon and corn prices were unable to get a foothold above $4 per bushel.

There is some danger, how-ever. Last week, Iowa ethanol was selling for around $2.05 while unblended gasoline dropped to $1.90. If those ratios hold, blenders will have less incentive to mix ethanol into their unleaded gasoline.

Biodiesel makers have suffered losses that peaked at 22 cents per gallon in July. The industry pulled to a zero/break-even point in November. But the industry warns that if Congress doesn't renew the $1 a gallon tax subsidy, some plants could close after the first of this year.

source: desmoinesregister