Ethanol won't buoy corn prices forever

US - Will the ethanol boom continue to drive up corn prices? In a white paper released this week by the Ethanol Promotion and Information Council (EPIC), Nathan Danielson of BioCognito and Geoff Cooper of the National Corn Growers Association (NCGA) say corn production levels will continue to climb alongside the growing demand for the ethanol feedstock.
calendar icon 17 January 2007
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As a result, concerns about high corn prices going higher are "unfounded. "It is unlikely that considerable price increases will be seen in the immediate future given current and expected corn production levels," Danielson and Cooper write in the white paper.

"The authors believe that while the market may very well show some transitory increases in price because of increased demand, corn prices will adjust to near the historic average in the long term."

Why? Danielson and Cooper say rising yield potential and the growth and segmentation of both new and old corn markets will, in the end, keep the marketplace on an even keel. When it comes to yields, per-acre production has grown annually at a higher clip in the past decade than in the previous 50 years. This biotechnology-driven increase, from 1.5% per year from 1944 to 1994 to two percent per year since 1996, will likely translate to a 15 billion-bushel corn crop by 2020, the authors say.

Growth is not the only dynamic force pulling on the changing corn market, however. Some traditional corn markets have remained relatively static in recent years, and while ethanol's growth has created a strong demand upswing, markets like livestock feeding have grown slowly, if at all. In this regard, ethanol's presence in the corn marketplace is necessary to stabilize what otherwise might be consistently bearish.


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