Rationing an already tight corn supply
When it comes to slowing corn consumption in an effort to get demand more in line with existing shorter-than-normal supplies, the marketplace is doing its job... sort of.
It's got a long way to go, though, says one expert. And there are a lot of legs to the demand stool, which will likely make it tough to slow demand enough to put a dent in the projected corn shortfall. Until then, corn prices likely won't stray too far from the current range.
"Corn consumption is clearly slowing, but the pace may not yet be sufficiently slow to ration the available supplies," says University of Illinois Extension ag economist Darrel Good. "This suggests that, while higher prices are not likely needed, current price levels will be maintained a while longer."
Ethanol production has declined more than 10% from where it was a year ago, and it's likely to stay around that level through the end of December, Schnitkey says. But, without some kind of policy shift, it's likely that level's not low enough to trim demand for the fuel.
"For the two weeks ended October 19, production was down 12% from that of last year. The year-over-year reductions are likely to continue to be large, at least through the end of the calendar year. Last year, ethanol production accelerated in November and December in anticipation of the expiration of the blender's tax credit on December 31, 2011," Good says. "However, the current weekly pace is sufficient for corn consumption for ethanol and by-product consumption to reach 4.5 billion bushels for the year. The upcoming decision by the EPA in regard to a partial waiver of the Renewable Fuels Standards (RFS) is not expected to have a substantial impact on ethanol production in the near future."
Aside from the RFS, some farmers say there's still time, especially given current price levels, for that demand to slow by the end of December barring any event that would cause disproportionate shifts in fuel prices.
"This year's numbers as a percentage drop from last year aren't the complete story, though we are talking only a few percent difference in the end, at most," says Agriculture.com Marketing Talk adviser Palouser. "Ethanol is another story, but fuel is still expensive. Things like [Hurricane Sandy] may well put a slight dent in that, but a month or two will probably tell the story."
Then there's exports. They have definitely been slowing, Good says. Right now, we're exporting less corn each week than the amount USDA says is necessary to reach its estimate for the year. And, that discrepancy's likely to continue to grow.