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Veteran Advisor

Re: $12 Corn?

Someone might say that we DO have a corn reserve---we're just using it make ethanol at the present time

 

trouble is---no one bothered to write the rules on the exit strategy from this reserve under tight supply conditions

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Friend

Re: $12 Corn?

Did I misunderstand back in 2008 when corn was going past $5 then $6 and then $7 that the ethanol plants were going to shut down. Crude oil peaked about $147 but it is now about  $112. Gas and ethanol prices are similar to 2008.

 

How does $10-11+ corn work now for ethanol plants when it wouldn't back then?

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Veteran Advisor

Re: $12 Corn?

Whew!!!   Ray, for a moment there, I was afraid you were going to say the reserve was around my waist. 

 

Actually, I have always said that makes a plus for the case of ethanol. Be interesting to see which it more important, lower grain prices or lower fuel prices.  There are all kinds of ways to change the game, only problem is that old law of unintended consequences. 

 

Now Walmart and McDonalds are blaming speculators for the rise in commodity prices.  I think it was a Jan. 2010 USDA report that sent prices crashing.  I am NOT saying they did it  with any ill intent...they probably believe the facts as they knew them.....but that is when we should have been rationing supply.  Then add all those, not just the USDA, that reported all summer there was a big corn crop out there.  It was a big one (3rd largest).  But not the big one being traded.  And that, is what got us to where we are today. 

 

The weather will determine where we are this time next year.

 

Our new governor, said seven dollar corn is bad.  He must want to save money for people  to spend on internet gambling that he is considering.

 

 

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Honored Advisor

Re: $12 Corn?

Anecdotally, it seems everyone around here has no or very little old crop and sold enough new to make this delay a big worry.  Some are delivering $3.50 that was sold 2 years ago.  Saw a chart of the different Ethanol shut down corn prices, if I recall correctly at today`s gas prices it was over $8 corn, minutes ago heard prediction of $6 gas this summer that would support $12 corn.  You`d think those that needed corn before fall would`ve gotten covered in the past buying opportunities.  If $12 corn does come to fruition, it`ll be a Weimar Republic currency collaspe complete with wheelbarrows of cash for bread and such.

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Senior Contributor

Re: $12 Corn?

If I can barter a bushel of corn for two gallons of gas I'll have corn in my wheelbarrow, not cash. Smiley Happy

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Senior Contributor

Re: $12 Corn?

   You guys realize that, at the grocery store products on the shelf from (blue chip) companies,all stock holder held are already higher than the raw product farm gate commoditie should dictate.What doe's that tell you? I can tell you that by time everything shakes out,the traders we listen to every morning,the miriads of stock holders in this country and abroad,(old money) and the stock held grocer are capitalizing on this bull way more than the lowly American farmer. I guess they need the inflation to eventually cover the debt.Keep your hat on!

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Advisor

Re: $12 Corn?

Most of our coops are already bumping up to the credit limit to supply our margin accounts. not saying it wouldn't get there, but man what a bellyache it would be for many. past experience has told me that when stories such as this start circulating, it's time to start pricing. I'll tell you more in 6 months.

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Re: $12 Corn?

Hi Ray,

 

You probably saw this piece from Darrell Good

 

http://agfax.com/Content/alternative-2011-corn-production-consumption-and-price-scenarios-03032011.a...

 

"Short-term policy responses to a small crop and extremely high prices are likely limited.  Early release of CRP acres back into crop production would be complicated and the impact would not be immediate.  Easing biofuels mandates and tax subsidies might be ineffective in slowing ethanol demand for corn if crude oil prices remain high and blending margins remained favorable.  One of the few ways to moderate demand in a short-supply situation is to impose restrictions on corn consumption by one or more consumption sectors. The sectors restricted would presumably be a function of the specific policy objective.  If controlling domestic food price inflation was the primary goal, for example, restrictions could be imposed on exports and/or domestic industrial uses of corn, including ethanol production. There is little precedent for restrictions of this type outside of wartime.  Whatever the policy response, it would be critical for the policy initiative to be implemented early and for the policy to be implemented and enforced in a straightforward manner. 

 

It is certainly hoped that a shortfall in corn production can be avoided. The time to develop a policy response to such an event, however, is before it occurs."

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Veteran Advisor

Re: $12 Corn?

Hardnox,

 

Dr. Good pretty well nailed it. We're in the perfect storm and not many ways out.

 

Ethanol-----blenders are making great money, while producer margins are slim..Brazil continues to import ethanol as cane harvest having trouble reaching full steam due to rainy conditions..EU wants biofuels to help make up for some losses of N Africa crude supply. Pulling VEETEC off right now would have zero effect on usage in short run....it's quite possible the mandate could be changed with little effect for the next 1-3 months....Now, push the price of corn up $1 real fast and then we see what happens with ethanol margins/production

 

CRP----a time bomb.....back in '95 you could buy your way out for whatever amount of time was being given up for the current year ie; if taking out 4 months early, you lost 1/3 of that year's payment....simple, and market based....now, they have all these bell and whistles "pay it all back" regs.....

 

If you subscribe to the theory that the govt will make the wrong decision at the most inopportune time, then what will happen is that we will have weather problems and they will announce an early out program for CRP for 2012......that will happen about 15 minutes before the weather straightens out and the '11 crop comes in better than expected....but we'll have some extra acres to work with in 2012, and if we've not managed the entire process very well, then the likely outcome is doing damage to our demand base in '11 only to be followed by a production boost in '12 that creates the next downward spiral...

 

sell 12/13/14 corn by hedging it in the 2012 and wait for the carries to come back before rolling the hedges ??

I suppose there are worse things than having 6.50-6.75 corn sold for 2-3 years....

 

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Frequent Contributor

Re: $12 Corn?

Just a thought here on ethanol plant shut down prices. Have not seen your chart. But wouldn't an E plant shut down sooner at say $10.00 corn in late Jul. early Aug. than it would at $10.00 corn on Aug. 15. It seems it would be reasonable to run in red for 1 week til new crop corn comes on line. The big IF would be when corn comes online, and the main determining factor for that is when it gets planted within reasonable distance from the E. Plants. 

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