Peak Corn? Federal ethanol mandate drives corn supply-to-use ratio to 50-year low 

If you haven't read today's issue of The Daily Herd, and you haven't combed through the USDA's latest World Agricultural Supply and Demand Estimates, you might not have noticed what's going on with our supply of corn. Here are the highlights from the Herd:

675 million bushels of corn may seem like a lot, but that is only an 18 day supply for the US grain market, and that is the reason corn prices pushed above $7 Wednesday on the CME.

Corn, beans and wheat prices have all been rising, but so has the price for ethanol. A year ago, ethanol was in the $1.70 per gallon range, but Wednesday closed at $2.457 per gallon....

The result of the ethanol industry’s demand for corn tightens down the supply, says University of Missouri marketing specialist Melvin Brees. In his Crop Report Commentary Brees says USDA economists raised corn use by 70 million bushels and 50 million of that was added to ethanol refining. The 745 million bushel ending stocks were lowered to 675 million, and that is 5% of the expected use for the current marketing year. Actually it parallels the tight corn supply of the 1995-96 season and is the least stocks to use ratio in the past 50 years....

As corn prices continue to push higher, so will soybean prices, in an effort to keep pace with the spring race to buy acres.

Of course, the federal government is driving this demand for ethanol. The 2005 and 2007 energy bills mandate U.S. blenders sell a certain amount of ethanol. The effect: we're running low on corn, which is bad news for ranchers, and anyone else who uses corn, beef, or anything that competes with corn for land -- that is, bad news for everyone except for a few folks getting rich off ethanol.

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Timothy P. Carney

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