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Trader: No corn rationing yet

CHICAGO, Illinois (Agriculture.com)--Despite the USDA leaving the U.S. 2010-11 corn and soybean ending stocks left unchanged in Friday's report, the market remains nervous that demand threatens tighter stockpiles.

In its April Supply/Demand WASDE Report Friday, the USDA estimates the 2010-11 soybean carryout at 140 million bushels, equal to its March estimate. Plus, the U.S. 2010-11 corn carryout is set at 675 million bushels, unchanged from the government's March estimate.

Glen Hollander, Hollander & Feuerhaken president and CME Group corn floor trader, says the trade learned Friday that demand has not yet been curbed.

"The market started lower, but even a report, considered by many to be bearish, couldn't keep the market down," Hollander says.

End-Users

In Iowa, there is an ethanol plant paying farmers $0.55-$0.60 per bushel over the September futures price of $7.11.  

Hollander says this is further proof the demand is not waning. "It sounds like a silly number to be offering the farmer. But, that's what it is going to take to buy corn."

For weeks, industry experts have been saying that ethanol producers would be the first end-user to get scared of higher corn prices.

However, with margins remaining strong, there's uncertainty as to what price will ration demand, Hollander says.

"Crude oil is up $2.32 per barrel, gas is shooting higher, and heating oil is up $0.10 per gallon, do you think ethanol is going lower?"

When the corn price retreated to $6.08, a few weeks ago, it then shot back up to $6.80 and the ethanol producers, livestock feeders and processors had all the chance in the world to buy and they did, Hollander says.

So, the fact that these prices still are not rationing demand, keeps a lot of uncertainty in the market.

Reaction

Following Friday's report, members of the Agriculture.com Marketing Talk forum agreed that ethanol producers are not afraid, yet, of these higher corn prices.

"The report isn't lying. It is telling you that subsidized demand (Ethanol plants) are doing so well that they can operate in this environment.  They have absolutely outpaced the livestock sector They are the new number 1 user," jrsiadranch says.

Palouser, a Marketing Talk forum member, while discussing how the U.S. monetary policy affects alternative energy, agreed the ethanol industry has become a major player in the corn market.

"As for ethanol. It is a drop in the bucket as it relates to monetary policy, though it is a real factor for usage. It would be fair to say it IS part of an energy policy started when corn was cheap, and there is no doubt whatsoever that it has affected both price AND production. A change in energy policy could have an affect on ethanol much greater than monetary policy."

Spreading Its Wings

Ethanol co-products have become a substantial component of the global feed market.

In 2010/11, the ethanol industry is expected to produce more than 39 million metric tons of animal feed, enough to produce 50 billion quarter-pound hamburgers-or seven patties for every person on the planet, according to the Renewable Fuels Association.

In fact, the 39 mmt of animal feed, produced by the U.S. ethanol industry this marketing year, is nearly equal to the combined amount of corn produced by Mexico and Argentina-the world's fourth- and fifth-leading corn producers, the RFA stated in a press release.

In 2010, the U.S. exported 9 mmt of distillers grains-the same volume of corn imported by Mexico, which is the second-leading importer of U.S. corn, the RFA research shows.

New WASDE Designation

For the first time, this morning's WASDE report made a point to show that corn, processed by the ethanol industry, produces both feed and fuel. One-third of every bushel used in the ethanol process returns to the animal feed market in the form of distillers grains, corn gluten feed, or corn gluten meal.

When the production of animal feed co-products is taken into account, only 23%, vs. estimates of 40%, of the 2010/11 U.S. corn supply and 3% of the global grain supply is truly being used for fuel production, RFA notes in the press release.

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