Corn Prices Likely To Remain In $4/bu. Range
Farmers who are wondering about volatile corn markets can simply take a look at corn futures prices to see what direction prices may go, says Wally Tyner, Purdue University Agricultural economist.
"While futures markets are not predictions, they are the best indicator we have of the collective thinking of market players," says Tyner. "Last week May corn futures were $4.28. If you look at the corn futures right now, they are above $4/bu. for at least two years and even beyond two years."
The main reason for the $4/bu. price for corn is ethanol. "There has been a huge increase in demand," says Tyner. "Ethanol production has more than doubled in the last year and could consume 30% of the corn crop in '08. Based on what I see in ethanol growth, I don't expect corn prices will fall very much from current prices in the next couple years."
USDA is projecting a 6% stocks to use ratio for several years, adds Tyner. "The last time corn stocks were at that low of a ratio was during 1996," he says, "when corn prices were even higher than they are now."
Still, ethanol prices are linked to oil prices, and could potentially drop, he points out. "At $60 a barrel for oil, the maximum that ethanol plants could pay for corn is about $4.80/bu.," says Tyner. "So, the fact that oil could fall below $60/barrel will limit future investment in ethanol plants."
With corn futures currently hovering about $4.30/bu., many potential investors are starting to back away from plans to build new plants. "If an ethanol plant is already being built, it will probably be completed," says Tyner. "However, if the plans for a plant aren't very far along, it probably won't be built with the prices for corn coming so close to the limits for profitability."
A global recession would be the main factor that could drive down the price for oil and the price for ethanol, says Tyner. "China alone represents one-third of the growth in global oil demand since 2000," he points out. "So, the major thing to watch that could affect oil prices is global economic growth."
He adds that the recent stock sell-off in the Chinese market is likely more of an indicator of a bubble in the market than a drop in economic growth. For those who want more information on energy price forecasts, click on the following U.S. Energy Information Administration Web site: www.eia.doe.gov/oiaf/forecasting.html.
By John Pocock
Farmers who are wondering about volatile corn markets can simply take a look at corn futures prices to see what direction prices may go, says Wally Tyner, Purdue University Agricultural economist.
"While futures markets are not predictions, they are the best indicator we have of the collective thinking of market players," says Tyner. "Last week May corn futures were $4.28. If you look at the corn futures right now, they are above $4/bu. for at least two years and even beyond two years."
The main reason for the $4/bu. price for corn is ethanol. "There has been a huge increase in demand," says Tyner. "Ethanol production has more than doubled in the last year and could consume 30% of the corn crop in '08. Based on what I see in ethanol growth, I don't expect corn prices will fall very much from current prices in the next couple years."
USDA is projecting a 6% stocks to use ratio for several years, adds Tyner. "The last time corn stocks were at that low of a ratio was during 1996," he says, "when corn prices were even higher than they are now."
Still, ethanol prices are linked to oil prices, and could potentially drop, he points out. "At $60 a barrel for oil, the maximum that ethanol plants could pay for corn is about $4.80/bu.," says Tyner. "So, the fact that oil could fall below $60/barrel will limit future investment in ethanol plants."
With corn futures currently hovering about $4.30/bu., many potential investors are starting to back away from plans to build new plants. "If an ethanol plant is already being built, it will probably be completed," says Tyner. "However, if the plans for a plant aren't very far along, it probably won't be built with the prices for corn coming so close to the limits for profitability."
A global recession would be the main factor that could drive down the price for oil and the price for ethanol, says Tyner. "China alone represents one-third of the growth in global oil demand since 2000," he points out. "So, the major thing to watch that could affect oil prices is global economic growth."
He adds that the recent stock sell-off in the Chinese market is likely more of an indicator of a bubble in the market than a drop in economic growth. For those who want more information on energy price forecasts, click on the following U.S. Energy Information Administration Web site: www.eia.doe.gov/oiaf/forecasting.html.
By John Pocock