Download Farm News, IA 08-01-07 Analysts do not anticipate drop in yields

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Farm News, IA
08-01-07
Analysts do not anticipate drop in yields
By Kristin Danley-Greiner, Farm News staff
Despite the drought-like conditions plaguing parts of the state, analysts do not
anticipate a notable drop in yields that would negatively impact Iowa’s booming
ethanol industry this year—but, that may change in a couple of years.
Kelvin Leibold, farm management field specialist with Iowa State
University, confirmed that there still would be “adequate supplies of corn to fuel
the ethanol industry in Iowa this coming year.” But, Leibold said whether or not
there would be bushels left over for exporting to other regions or overseas
remains to be seen.
“That will depend on the demand and supply in other regions and around the
world. You have two issues—the first is a supply of grain, which I think will be
there—the second is at what price,” Leibold said. “It appears that the markets
think that it will be less than it was earlier. We are still significantly below contract
highs for the December 2008 futures contracts.”
Elaine Kub, DTN commodity market analyst, said that the U.S. Department of
Agriculture’s observations show that fields are in ’’generally superior conditionî
across Iowa.
“They’ve received some rain, which is supportive to corn plants’ reproduction at
this critical time. So I would say that Iowa is on track to produce its largest crop of
corn ever and certainly supply all the currently operating ethanol plants,” Kub
said.
Furthermore, Leibold said that the difference between Chicago Board of Trade
prices and local prices is “relatively large,” which would usually indicate that local
grain users are “not very eager to buy more grain.”
“They may well have all the corn—in the case of ethanol plants—purchased that
they think they need to fill out the rest of the summer until the new crop harvest
begins,” he said.
University of Illinois agriculture economist Darrel Good said that if corn ends up
being “short” in Iowa, the ethanol industry might have to pay more to transport
corn into the state. But, doing so shouldn’t have too much of an impact.
“Otherwise, everything else being equal, that would lower the margins somewhat,
but margins would still remain very profitable,” he said.
Glancing ahead to 2009-2010, depending upon how many planned ethanol
plants actually are built in what Kub said has become a “challenging economic
environment” for ethanol producers, that is when supplies could get tight.
“But the market certainly seems to opine that we’re about to see a surplus of corn
on the U.S. market—this is clear in the downward trend of the market since June,
when weather-risk premiums disappeared as showers fell across the Corn Belt,Ӕ
she said. “It is also clear in the wide futures spreads between contracts
throughout the 2007-2008 marketing year. There are 15.5 cents between the
December 2007 and March 2008 contracts, which is close to what it would cost
to store a bushel of corn during that time and keep it off the bearish market.”