Ethanol industry blamed for skyrocketing corn prices

Grain and oilseed prices have reached some of their strongest values in years, and a key contributor is demand for corn from U.S. ethanol plants, according to an analyst.

Kevin Grier, senior market analyst with the George Morris Centre in Guelph, Ont., said the current amount of corn being used by U.S.-based ethanol plants is as high as it has ever been, primarily because of favourable governments policies in the U.S.

“It’s a train wreck. Many governments have a lot of unintended consequences,” he said. “I don’t think this was ever intended to happen (the steep rise in corn prices), but it had to come eventually.”

“If it wasn’t for U.S. government policy, there probably wouldn’t be a U.S. ethanol industry. It’s totally dependent on getting industry to use it. Tariffs and subsidies are favourable in terms of the ethanol industry using it, so it’s all because of policy,” he said.

On Wednesday, predictions for US corn used for ethanol were raised by 50 million bushels to 4.95 billion, according to the supply and demand report from the U.S. Department of Agriculture.

More than a third of the U.S. crop goes to ethanol. While ethanol producers face higher corn costs, those have been largely offset by rising gasoline prices that have helped keep ethanol blending economics favourable.

It’s imperative that the upcoming crop is a good one, Grier said, or there is no telling how high corn futures could end up going.

“We better hope that this spring is perfect, or you can name your price for corn,” he said. “We’ve had (the) last three or four years as fantastic crops, and it’s still not enough, so if we get anything less than absolutely perfect conditions this spring there will be a huge supply shortfall.”

Also in the latest report from USDA, the government agency lowered end-of-year stocks by 70 million bushels, to 675 million. The previous amount was already projected to be a 15-year low.

The nearby March contract at the Chicago Board of Trade sits currently at US$6.985 per bushel, which near is near a two-and-a half-year highs.

About the author

Glacier FarmMedia Feed

GFM Network News

Glacier FarmMedia, a division of Glacier Media, is Canada's largest publisher of agricultural news in print and online.



Stories from our other publications