N o M ajor B reak
in Feed Costs Likely
Corn, Soybeans, and Meal Prices Exploded Last Month
By Edward Clark, Editor
Corn, soybean meal prices, as well as
soybeans, exploded last month, and
with little bearish news on the horizon for crops, egg producers will likely
face huge feed input costs for months to
come, if not longer.
In late December, March 2008 corn futures were above $4.50/bu., with deferred
contract months over $4.70/bu. and even
2009 contracts well over $4.50/bu. January soybean futures, meanwhile were
over $12/bu, with a $12-plus level for
March through August. Soybean meal
prices were equally high, $326/ton for
January, with prices above $300 through
With corn, soybean and wheat prices
at lofty levels, some temporary declines
in prices might be expected, but there is
little to suggest that prices will move significantly lower in the near term, Darrel
Good, University of Illinois economist,
said last month.
“More acreage of all three crops may
be needed in the United States in 2008,
and the prices of other crops are moving higher as well. In addition to more
acreage, a favorable growing season is
needed in 2008 to prevent another round
of sharply higher prices,” Good said.
Few Bearish Factors
“Typically,” Good said, “there are both
bullish and bearish market fundamental
factors and the market must judge the
net effect of those factors.” But currently,
“there are few bearish factors to weigh
against the combination of strong demand
and supply concerns.”
The market also got a bump from last
month’s World Agricultural Supply and
Demand Estimates (WASDE), released
by USDA. The department lowered corn
ending stocks for 2007-08 by 100 million bushels and raised the corn export
forecast 100 million bushels on expected
increases in foreign consumption and imports.
“At the projected 2.45 billion bushels,
2007-08 corn exports would be a record,
surpassing the previous record of 2. 4 billion in 1978-80,” the report said.
USDA raised corn’s season average
farm prices to $3.35-3.95/bu., up 15 cents
from its previous month’s estimates, due
to higher reported prices to date and higher cash and futures prices.
On soybeans, the WASDE report lowered soybean ending stocks for 2007-08
down 25 million bushels to 185 million, a
68 percent decline from 2006-07.
The department now projects the season average soybean price at $9.25/bu. to
$10.25/bu., up 75 cents from the November report. One reason for the boost: a
20-million bushel increase in exports due
to stronger-than-expected sales to China.
Soybean meal prices, meanwhile, are
forecast in the report at $265 to $295 per
Ethanol Expansion Faces
Most ethanol facilities are located in the Corn Belt and the Midwest E- 10 market “
appears to be reaching the saturation point in that region,” according to an Iowa State University report. Infrastructure capacity for moving ethanol to the East and West Coasts
and the South has not been able to expand as rapidly as production and has caused
wholesale ethanol prices to trade at a large discount to gasoline.
Infrastructure includes ethanol train loading facilities, specialized rail cars, locomotives, train crews, siding in highly congested urban areas for unloading 100-car to 110-
car trains, storage tanks and splash-blending facilities, as well as retail facilities for
While gasoline and diesel fuel are shipped by pipeline, current pipeline facilities are
unsuitable for ethanol. A sharply increased Congressional mandate for annual ethanol
production would provide further incentive to expand infrastructure capacities, along
with the current 51-cent per gallon blending credit and the large discount of wholesale
ethanol prices to unleaded gasoline, the report says.
Within 18 to 24 months, it seems likely that infrastructure capacity will begin to catch
up with production capacity. In the meantime, periods of depressed ethanol processing
margins appear likely, due to downward pressure on ethanol prices and upward pressure on corn prices.
Another possible development that could take some pressure off infrastructure, the
report says, would be if government, auto industry, and EPA officials could agree to
allow E- 12 to E- 15 or higher blends to be used in non-flex-fuel vehicles. Behind the
scenes discussions on this topic reportedly are taking place, focusing on vehicle warranty and environmental issues. A breakthrough in this area could expand the Midwest
ethanol market by as much as 20 percent to 50 percent.