Meat + Poultry - May 2008 - 74

CORN PRICES

Corn futures prices

per bu
$6.50
$5.50
$4.50
$3.50
$2.50

$1.50
Sept. Jan. May
2004 2005

Sept. Jan. May
2006

corn in May, yields begin to decrease
about 1.5 bushels per day for each day
after May 10 in much of the Corn Belt,
research from several universities indicated, although some analysts put the
key date at April 20. Farmers also could
switch to corn varieties with shorter
growing seasons, if available, but those
tend to have lower yields than full-season varieties. The longer weather delays corn planting, the less likely area
will be above the 86 million acre USDA
number or at the 155 bushels-per-acre
trend yield, the analysts said.
The key period will be summer
weather with corn pollination beginning

Corn use for ethanol
in million bus
2007-08

2,117

2006-07

1,603

2005-06

1,323

2004-05

Source: U.S. Department of Agriculture
80

MEAT&POULTRY

May 2008

Sept. Jan.
2007

May Sept.

Jan.
2008

in July across the Corn Belt. While the
wet spring has made planting difficult,
it should bode well for the rest of the
growing season with ample soil moisture
heading into summer. And analysts noted
that most weather observers are calling
for "benign" summer weather, indicating
no extremes of high temperatures or lack
of rain that could trim corn yields. One
cautioned that even a perceived weather
problem may amplify gyrations in corn
futures prices and easily send values to
$7 to $8 per bushel.
Several factors will affect the supply
and price scenario for corn in addition
to weather. Integral players include
commodity index
funds, prices of
other commodities (including
crude oil), supply
in other countries,
3,100
feed demand and
of course ethanol
production.
"Any discussion of corn prices has to look at
index funds in
commodity markets," Cooper
said. The funds
were "wreaking
havoc" in commo d it ie s a nd
might account
for a third of the

www.MEATPOULTRY.com

price increase in corn, or about 80c ber
bushel, since 2007, he added.
Francl estimated the index fund "inflation" at 70c a bu or more and said
there was "no indication to date they
are going to reduce participation in
the market."
Index funds began pouring billions
of dollars into commodity markets several years ago when commodities were
seen as undervalued relative to other
investment classes and are blamed for
increasing volatility by exaggerating
price moves.
But others have questioned the degree to which index funds have pushed
prices to record levels. In a recent presentation, William Lapp, president of
Advanced Economic Solutions, Omaha,
was asked whether index funds were
the cause of the market surge. Lapp
challenged the idea that funds have
more than a short-term impact, urging
a focus instead on the tight supply and
demand situation in grain markets.
"Funds may decide the path we take,
but fundamentals determine where we
end up," he said.

Ethanol plateaus
"We are seeing a slowdown in expansion of the ethanol industry," Cooper
said. "High corn prices are one reason for that." But he noted that limited plant construction capacity and a
shortage of some equipment also have
contributed.
Ethanol plants were coming online
in about 18 months, from ground breaking to production, about three years
ago, Cooper said. Now it's closer to
24 months. About 12 to 15 plants that
were expected to be online by April
are not, he said.
"Overall, existing plants up and running are doing OK if they contracted
corn at $4.50 to $5 a bushel," Cooper
said. While break-even models vary, if
a plant pays $6 for corn ethanol needs
to be $2.30 to $2.40 a gallon, he said.
"But very few are paying $6 for corn," he
added. Meanwhile, ethanol prices have
hovered near $2.50 a gallon. But corn
prices at current levels or higher will

http://www.MEATPOULTRY.com

Meat + Poultry - May 2008

Table of Contents for the Digital Edition of Meat + Poultry - May 2008