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Senior Contributor

Corn price, Ethanol Mandate, and livestock industry

I really don't think the ethanol mandate has as much to do with price of corn as everyone thinks it does, Corn prices would have found a reason to push to $7.00 with or without the ethanol mandate.   Since the mandate how many ethanol plants have been built BECAUSE of the mandate??   The ethanol industry was there and building BEFORE the mandate. 

The current run up in commodity prices has little to do with ethanol.  There has been problems raising crops in all parts of the world SINCE the beginning of the ethanol mandate.  No one could foresee that coming.  Drought in the black sea region and Russia, and parts of Europe kept them from exporting feed wheat, and with the dollar at or near record lows importers came here for their grain needs.  The price of commodities isn't 100% supply and demand driven.   When corn was hoovering around $2/bu, and the US Dollar was double the value as today, no one dumped the corn in a hole some where, we still used every bushel that was produced.  in those years no one complained about the corn price. There was very little exports because of the dollar being high

The price of corn is made of Supply and demand ALONG WITH macro economics, not to mention the cash flow from outside investors, In my opinion the corn market is a 3 legged stool, pull one leg out  and you have a market like we had over the past week. 

In my opinion being a 33 year old male, I see no reason to quit the cows, or any other livestock for that matter, but since the average age of American farmer is almost double that, I would imagine they are tired of taking care of livestock, I blame this to the disappearance of the cow herd, and the hog herd, animal enterprises where developed to help take care of the over abundance of cheap corn over the past 30 years.  If you feed your own cattle and your own corn your still making money feeding cattle.   Livestock industry is the first "value added" market for corn, and the only one for the local farmer. 

Its a lot easier to raise corn then to take care of hogs or cattle, will that mind set change, I doubt it.   

I read on another "ag site" an article written by someone from a Midwestern College.  The discussion is about waiving the ethanol mandate.  The whole Idea of the ethanol mandate was to move away from foreign oil.  Now because of outside forces that have pushed the grains higher everyone wants to dump this idea?  Remember what part of the world our oil comes from,  remember WHY we wanted to move away from foreign oil? 

Unless something happens outside the US I don't see corn prices falling much below $5/bu over the next 8 months.   We will still need a 88-91 million acreage next years for corn.   But I don't see the corn price staying  around $6 for my lifetime.  I see it sliding back to around $2.50/bu by 2025.  

The world has a growing middle class, which is growing as fast as it is because of poor fiscal policy in the US, to cheap of interest rates for to long, remember the US dollar is the world's reserve currency, and for all our sakes we better keep it that way.  When you are the largest consuming nation in the world you better hope your currency is on top.   Imagine if you can oil being traded in some other currency, first you would have to exchange our dollar for another currency, with our poor fiscal policy, our dollar is worthless, gas could be $10/gal.

In my opinion the ethanol mandate needs to stay, and not because of  $7.00 corn. 

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Contributor

Re: Corn price, Ethanol Mandate, and livestock industry

This is a great post. I am a animal producer in Michigan. I do believe the mandate does have to do with the price increase but probably not as much as we think. The weak dollar has more to do with it than anything. I am 41 years old and intend to raise animals as long as I can.

I know you crop guys are excited about these high prices as you should be BUT this is not good at all for the livestock/poultry industry. I know of a couple hog guy's that bought a little last week but thats about it. The hog/cattle guys can do that because they can also lock in there futures for animals. One hog guy I know locked in some hog futures and some corn futures. He now's he will at least break even.

The guys who are not locking anything in yet are the poultry guys. Sure we droped to 6.20 last week but you have know idea where your prices are going to go for the next year you can't do anything. If we have to pay 6+ for the next year the poultry sector will decline at a rapid pace.

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Senior Contributor

Re: Corn price, Ethanol Mandate, and livestock industry

          Ethanol is used as an oxygenate in gasoline. It has competed with MTBE in that phase since the late 70's. MTBE was proven to be a nonbiodegradable carcinigen in the 90's and it took many years for municpalities sueing the petroleum industry and finally winning court cases in 2001 to usher the federa; gov't into banning its use around 2005. Thats how strong the petroleum industry lobby is in Washinton. They can spew a carcinegin for decades and get away withit scott free. Now you are witnessing their powerfull lobby again to eliminate ethanol VEETEC. Sen Coburns ( Ok ) goal isn't to balance the budget. its to eliminate ethanol, as it has grown into a 13 billion gal industry and Big oil wants it back. If he wanted to balnce the budget he could also take away the petroleum industries over 120 billion in intitlements, and pull our troops out of the middle east. The military presence there is over 3 billion a week in costs in Afganistan and Iraq.. The Saudi's and UAE, Bahrain, and a host of other countries enjoying our protection should be footing the bill there.Sen Coburn's goal here isto make the US fuel industry 100% petroleum and farmers into peasants!

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Veteran Advisor

Re: Corn price, Ethanol Mandate, and livestock industry

Highyields I completely agree with you. If ethanol cuts production because it has less government support the price of grain would fall a little. What I don't think the livestock guy's lobbying in Washington against ethanol realize is how fast "corn' farmers can change back into corn/hog/cattle producers and get a little more for there grain. I am a supporter of biofuels because it gives grain a little more value and it creates jobs in this country. I have a friend whom I served in Afghanistan with who has struggled to find a job here in Michigan for years, that yesterday left for Illinois to work in a biodiesel plant. My issue with big oil is why does that industry STILL need subsidies after its been in business for decades.... Employs ALOT of foreign workers in unfriendly countries and still gets billions in government help. In MY opinion if we are to wean ethanol and the grain farmer from the teat, big oil should come along for the ride as well.

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Contributor

Re: Corn price, Ethanol Mandate, and livestock industry

I am by no means saying corn cannot get to $2.50/bushel again but that would be a pretty low average for the year 2025 I think. Another thought, since we are making predictions, the politicians, rules, and programs can and will drive a larger percentage of the livestock industry out of this country by 2025. 

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Advisor

Re: Corn price, Ethanol Mandate, and livestock industry

   Predicting prices 14 years in the future is really sticking your neck out.  Many things can change in 14 days, let alone 14 years.  I do commend you for your optimism.  On the other hand, these are the best times many of us have ever seen, crop price wise.  My pessimistic side tells me when one is at the top there's only one way to go from here.  If we ever get somone at 1600 Pennsylvania Avenue that gives confidence to Wall Street I expect commodity funds to flow back to the now listless NYSE.

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Senior Contributor

Re: Corn price, Ethanol Mandate, and livestock industry

The $2.50 I pulled because of the idea of 300 bu/ac average corn yield is what the seed genetics are pushing for, and I think they will get it,  The last bull run in commodities started in 1969, corn was around $1/bu for what I can find, maybe a ilttle higher

this commodity run now started around 2000  and the corn price was around $2/bu maybe a little higher,

In 1998 or 1999 the corn price hit $1.78 so i just assumed with inflation and what not the next major bottom in the corn market would come around the 30 year mark from this bull run, be a little higher, and correlate with the next big jump in yields.  

 

Real scientific. 

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Re: Corn price, Ethanol Mandate, and livestock industry

Actually, I'm thinking that once we level off at the 15 b/g/y and see a bit of global stocks build then there is little if any reason for corn to trade anywhere close to these levels. Weather will be the primary determinant in that.

 

The interesting thing will be to see whether the new Farm Bill comes close to the recognition that there is a trapdoor under grain producers in that scenario.

 

If it weren't for fiscal constraints they could do something in the way of a non-recourse loan rate for a farmer owned reserve. With the amount of bin space built recently, it could be done.

 

However, they probably (???) aren't stupid enough to commit the mistake of the 70s and set the loan rate too high. Something like $4 for corn seems reasonable which would still see the big winners in tis past round consolidating gains as the weaker sisters struggled with those levels and everybody bleeds a bit of equity.

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