Urbana, Illinois
February 16, 2009
The size of the biofuels market
will be an important factor in determining how many acres of
corn and soybeans are needed this year, said a University of
Illinois Extension marketing specialist.
"This is particularly true for corn," said Darrel Good.
"The majority of biofuels production continues to be corn-based
ethanol production. That will continue to be the case for the
next few years.
"However, the USDA acknowledged in the Feb. 10 report of
domestic supply and consumption prospects that sorghum is
increasing in use as a feedstock in some ethanol plants in the
southern and central Plains."
Good's comments came as he reviewed the factors that will
influence corn and soybean prices over the next several months.
Important among those factors will be the 2009 acreage decisions
of U.S. producers and the strength of the biofuels markets.
Expectations about planted acreage of corn and soybeans in the
United States are in a wide range and actual planting decisions
may remain uncertain for some time, he noted.
"Uncertainty centers on at least three factors," he said.
"First, the prices of 2009 crop corn and soybeans continue to
fluctuate, giving mixed signals to producers about the likely
relative profitability of corn and soybeans in the 2009-10
marketing year.
"Second, there is considerable uncertainty about the relative
cost of producing corn and soybeans in 2009. Fertilizer prices
were very high in the fall of the year, but have recently
declined, at least for some ingredients in some markets. The
cost of producing corn in 2009 could vary substantially among
producers."
The distribution of producers who have paid high input prices
and those who may pay lower prices could influence planted
acreage, but that distribution is not known, he added.
"Third, the sharp decline in winter wheat seedings and expected
decline in cotton acreage in 2009 will result in additional
acreage for other spring-planted crops," he said. "The magnitude
of that acreage is not known with certainty because some acreage
could return to non-row crop production or be idled due to
expectations of tighter margins for row crop production.
"In addition, the large decline in seedings of soft red winter
wheat may result in fewer acres doubled-cropped to soybeans."
Under current conditions of relatively low energy prices and
tight margins for ethanol producers, it is believed that the
Renewable Fuels Standards (RFS) will determine the level of
biofuels production and, therefore, the demand for corn for
ethanol.
"Those standards call for 10.5 billion gallons of renewable
biofuels use in 2009 and 12 billion gallons in 2010," said Good.
"The standards increase to 15 billion gallons by 2015.
"Assuming those standards remain in place, how much corn will be
used for ethanol production in the 2008-09 and 2009-10 marketing
years? The answer is not straightforward."
First, Good explained, mandated use is for calendar years, which
do not match corn marketing years. Second, there is some
uncertainty about the mix of feed stocks that will be used to
meet the mandated level of use.
"Third, within certain rules, blenders can use surplus
biofuels--in excess of the RFS--in 2008 to meet the 2009
requirements and can borrow some of next year's requirements to
meet this year's standards," he said.
Despite the uncertainty surrounding biofuels production, it is
clear that if the RFS are maintained, there will be large
increases in the use of corn for ethanol production over the
next two years and beyond. The USDA projects use during the
current marketing year at 3.6 billion bushels.
"We would expect use to exceed four billion bushels in 2009-10
and to exceed five billion bushels by 2015-16," said Good.
To Good, the likely increase in corn use for ethanol, along with
a rebound in U.S. corn exports during the 2009-10 marketing
year, suggests that planted acreage of corn in the United States
in 2009 needs to be maintained at least at the level of 2008.
For soybeans, an increase in planted acreage is not needed in
2009 if the U.S. average yield is near trend value of 42.5
bushels and use during the 2009-10 marketing year increases by
less than 250 million bushels (8.4 percent).
"The USDA will release the results of the Prospective Plantings
survey on March 31," said Good. "With the large decline in
winter wheat seedings, it is possible that this report will
reveal intentions to plant too much of one or more crops in
2009.
"Based on anecdotal evidence, intentions for a surplus of
soybean acreage may be revealed in that report."
By Bob Sampson, University of
Illinois |
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