5. Unfavorable Ethanol
News Lowers U.S. Corn Prices
Fears over an impending U.S. ethanol trade agreement with Brazil lowered corn
prices last week, says Ray Grabanski, President and the Principal Owner of
Progressive Ag risk management services, Fargo, ND.
"The rapid increase in ethanol for fuel is what is driving the U.S. corn
market," says Grabanski. "The comments by President Bush that he'd
like to cooperate with Brazil on ethanol and that he has a set of proposals
that they're looking at made the corn market nervous. Any additional negative
news about ethanol will continue to lower the market."
Currently the U.S. has a 55 cent/gal. tariff on foreign ethanol and a 51
cent/gal. ethanol blending tax credit, says Grabanski. Any change in those
two policies could dramatically lower the potential prices U.S. farmers
receive for corn, he says.
"It just wouldn't make sense to reduce the tariff on ethanol and have
the taxpayers pay to blend in foreign ethanol," he says. "Ethanol
is the one good thing we have going right now in many rural areas, and any
alteration in ethanol policy could change all that."
Corn prices still have a chance
to spike upwards, depending on the outcome of USDA's March 30 quarterly Grain Stocks and Prospective Plantings reports, he adds.
"We've had a nice rally coming into planting season, but the final
acreage report is going to be important in determining which direction corn
prices go -- and they could go either way," says Grabanski. "So,
there's nothing wrong with protecting yourself with puts ahead of this
Barring weather scares this season, the next chance for a price rally after
planting would be USDA's June 30 plantings report, he adds. For now, though,
"the threat from drought has recently been reduced," says
Grabanksi. "A lot of precipitation has fallen in the driest areas and
healed some potential soil moisture ailments."
The biggest weather threat to U.S. corn production right now is the potential
that wet conditions in the Eastern Corn Belt could significantly delay
planting, he adds. However, even if corn planting is hampered in this area,
other areas of the country are likely to plant significantly more corn acres,
including North Dakota and South Dakota.
"There will be a big switch from spring wheat to corn here, due to the
increased profitability from growing corn," says Grabanski. "That
might reverse itself though, if changes are made in U.S. policy towards
For more information about comments made by President Bush on cooperating
with Brazil to promote biofuels production and use, click here: www.whitehouse.gov/news/releases/2007/03/20070309-4.html.
For more information on Progressive Ag, visit its Web site at: www.progressiveag.com/index.jsp?pageid=103.
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By John Pocock