Milling & Baking News - December 16, 2008 - 31

Corn Wet Milling

Reflecting on a year of mixed
blessings for corn processing
BY PETER MEYER

The past year has been a year of,
at most, mixed blessings. The corn
processing industry and its customers were buffeted by unprecedented
price moves in corn and byproducts,
turmoil in credit markets and a collapse in energy prices.
The corn futures price graph tells
part of the story with which producers and customers alike had to cope.
Prices for byproducts, soybeans and
vegetable oil soared and then plummeted. Many analysts were confounded as prices for corn fell more
slowly than byproduct prices. The
impact of fast receding byproduct
credits left net corn cost higher than

feed grains are better than expected.
A good deal of wheat has fallen into
the feed quality category because of
bad harvest weather in many parts of
the world. Feed wheat will compete
with corn for the world's feeding
markets. The WASDE states "Wheat
imports are projected 10 million
bushels higher as abundant foreign
supplies of feed quality wheat and
extremely low ocean freight rates
provide incentives to import wheat
for domestic (U.S.) feeding."
Ethanol production also will impact corn demand and possibly corn
processing plant utilization rates in
2009. The dramatic fall in energy
prices in general and gasoline prices

Chicago corn futures prices
per bu

$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00

Jan. Feb. March
2008

April May June

last year as the pricing period arrived. Will next year be buffeted by
the same winds that created havoc
and confusion in 2008? What factors
will impact the industry next year?
Corn obviously will play a central
role. Prices are unlikely to be as volatile in 2009, unless truly aberrant
weather sweeps across the corn belt.
Input costs (seed, fertilizer, herbicides, etc.) have remained "sticky
high," but with lower grain prices
at least chemical costs should moderate as demand slackens. Weather
in the southern hemisphere seems
adequate at the moment. Therefore
no crop disasters seem to loom over
next year.
Inventories at the end of 2008 in
bakingbusiness.com / world-grain.com

July Aug. Sept.

Oct. Nov. Dec.

in particular combined with the
high corn prices led to the potential for financial disaster for ethanol
producers. VeraSun, a large ethanol
producer, was caught long corn and
was unable to work its way through
financially, therefore winding up in
bankruptcy. It is not yet clear who
eventually will own the assets and
which of them will be operated.
The December WASDE includes,
"Ethanol use is projected 300 million bushels lower this month as
prospects for blending above federally mandated levels decline. Financial problems for ethanol producers are reducing plant capacity
utilization for existing plants and
delaying plant openings for those

facilities still under construction.
Falling gasoline prices have also resulted in high relative prices for ethanol, reducing blender incentives."
It is not clear how long the recession
will last or how much lower gasoline prices will go, if any. But it is
clear that less ethanol will be made
from corn in 2009 than anticipated
just a few months ago.
Sugar prices and availability will
be another factor impacting corn
processing for next year. In the
United States, the primary question
is how much sugar beet acreage will
be planted now that grain prices
have fallen from the stratosphere.
For 2009, the sugar planting intentions will have an unusually important impact on sugar pricing. The
other primary impact will be Mexican exports of sugar to the United
States. This year 's Mexican exports
to the United States were raised
from 550,000 short tons, raw value, to 630,000 S.T.R.V. in the latest
WASDE. Additionally, the Mexican
Sugar Chamber just announced a
2008-09 crop of slightly in excess of
5.5 million tonnes, about 2% more
than its previous estimate and well
over other estimates.
The relationship of the Mexican
peso to the U.S. dollar also will
influence Mexican sugar availability in the United States because it
impacts high-fructose corn syrup
sales in Mexico. The consequences
of the de facto currency devaluation
for the Mexican peso will play out
over the next year as Mexican and
U.S. corn refiners and sugar suppliers fully explore the price discovery
mechanism.
Corn processors and their customers will gather for Christmas
and New Year 's Eve among family and friends with the majority
of their volume and price commitments made. Their minds should be
focused only on holiday reverie. But
the specter of 2008's ghost of Christmas past may interject itself onto
the scene just for a moment. It is not
a comforting specter. The surprises
ahead in 2009 could not possibly
be as gut wrenching as those in the
past year - could they? MBN

Peter A. Meyer is president of
PMI Consultants, a Chicagobased consultant to the food
and agribusiness industry.

Milling & Baking News

December 16, 2008 / 31

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - December 16, 2008

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