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Markets flinch after 'nothing new' in Bush biofuels plan

Agriculture.com Staff 01/24/2007 @ 10:21am

With an already bullish undertone in corn and soybean futures, last night's State of the Union address needed to provide a shot of new information regarding the government's biofuels plan in order to create more than a stir in the marketplace.

"We had a market with a lot of bull information going in [to Tuesday's State of the Union address]," says Don Roose of U.S. Commodities. "We needed something new for the market to go up. This was nothing new: More of the same, only the focus was less on ethanol and biodiesel as the new kid on the block than in the last couple of years."

In overnight trading on the e-CBOT, March corn ended up 6 1/4 cents lower at $4.02 3/4, while May corn ended the overnight session 6 3/4 cents lower at $4.13 1/2 and March soybeans ended up 8 cents lower at $7.19 1/4, according to the Dow Jones Newswires.

The main message from Bush's Tuesday evening speech is one of even tighter pressure on corn and soybean futures for the coming years, Roose says, though not all of this pressure will come from an uptick in ethanol and biodiesel production. Current old crop corn stocks are tight, and Roose adds efforts to curb demand are tightening margins.

Meanwhile, the pressure of potential weather-related crop stresses will be magnified in the coming year, with more acres going into corn production. All of these factors will weigh more heavily on the markets than Bush's new biofuels goal outlined Tuesday.

"We're going to watch the weather closer than speeches, because we do have a lot of corn acres this next year. The acres are going to be watched closely," Roose says. "There are only so many productive acres in the U.S. Weather's going to be too big an issue. You're only going to be working with a certain size of a crop."

Will the Bush administration's "Twenty in Ten" plan -- in which a new production goal of 35 billion gallons per year will be mandated by 2017 -- be attainable? Roose says with current and projected crop output levels, market conditions and biofuels production capabilities, he's got his doubts.

"It's unattainable in today's standards if we're going to use yields at today's levels. We will have to have substantially higher yields. The way we're increasing yields in today's fashion, 15 billion bushels is probably the high end we're looking at," he says. "Plus, you're going to have to distribute that to exports, biofuels and livestock."

Roose added, of Bush's mention of oft-discussed cellulosic ethanol production, there's a great deal of advancement that will have to take place in order to make it a legitimate sector of the fuel complex.

"It's a huge mass to handle. It's very futuristic -- things will have to change a lot there for some real viability," he says. "The future here really boils down to less usage and more efficiency."

With an already bullish undertone in corn and soybean futures, last night's State of the Union address needed to provide a shot of new information regarding the government's biofuels plan in order to create more than a stir in the marketplace.

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