Tension Builds Over Corn Demand

August 17, 2012 07:00 PM
Tension Builds Over Corn Demand

With a short crop on the horizon, end users are scrambling to meet their corn needs. But unfortunately, Jerry Gulke says, a free market isn't always a fair market.

It's no secret—while the drought has had widespread effects throughout the ag industry, the lack of a corn crop this year has hit end users especially hard.

Just last week, USDA lowered its corn production forecast to 10.8 billion bushels, down 17% from last month and 13% from a year ago. The department also slashed its national corn yield estimate to 123.4 bu. per acre, the lowest average yield since 1995/96.

Corn prices have since reached all-time record highs. The combination of high grain prices and steadily deteriorating pasture and rangeland conditions has made it difficult for many livestock producers to keep their operations afloat. Feed has become a No. 1 priority.

Meanwhile, the Renewable Fuels Standard is requiring U.S. fuel companies to blend 13.2 billion gallons of ethanol into gasoline by 2013. According to The Ohio State University Extension, that would require about 40% of the corn crop to be made into fuel.

So what happens when there's not enough corn to go around? "It just means someone is going to do without, or we all do without a little bit," says Jerry Gulke, president of the Gulke Group. He says the lack of corn this year is causing increased competition—and increased tension—between the livestock and ethanol industry.

Upping the stakes even higher is ethanol's current profitability. "Right now, ethanol seems to be profitable," Gulke says, citing higher gasoline prices and a resulting greater public demand for ethanol. "So the ethanol guy is real reluctant to back off right now, as long as he can make money, and that presents a problem for the livestock guy."

Gulke adds that this can cause tension at a very local level.

"We've been watching this for years, to see when push comes to shove, who is going to win when you compete against youselves," Gulke says. "This is not competing against Russia or China buying corn from us; they're not the culprits. It's maybe the guy next to you in church.

"That's the unfortunate thing about a free market. When it works, it's great, but it's not always a fair market."

As a corn producer, Gulke says he's concerned about keeping the demand base intact.

"That's the key question," he says. "What kind of demand base are we going to have left when we harvest next year's crop?"

Listen to Jerry Gulke's full market analysis:


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8/18/2012 05:53 AM

  As agreed, demand increasing for gasoline, then so does the demand for ethanol, resulting in increased demand for corn. Maybe you can already see the problem that has developed. We have 2 commodities in play here. First the crude oil, as a commodity, it is speculated on everyday. It has been reported that $10 to $15 of the cost per barrel of crude is just speculation. Corn is also speculated on everyday. I'm not sure how much of the price of a bushel is speculation, but rest assured it’s there. The results are not good. We have one commodity, crude, pulling the price of another commodity, corn, higher and higher as demand increases. The savings of ethanol is a farce, in that it cost more to produce ethanol than it saves in gasoline and ethanol based gasoline reduces gas mileage by as much as 25% and causes engine damage and costly fuel system maintenance. If that wasn’t enough, it has driven up the cost of everything derived from corn. As we all know, almost everything we eat has a connection to CORN. This includes beef, pork, eggs, poultry, cereal, cornmeal, prepared foods, corn syrup and even our pet’s food. This list goes on and on for corn use and its byproducts. Now how do we get the corn based products to the consumer? ..... Trucking. So we are paying more for the food we consume as it relates to corn, but we also are paying more in transportation and distribution because of the high price of diesel fuel. Diesel fuel, which in itself has no ethanol, but because gas prices have risen, it too pulls the price of diesel higher and higher. Have I made you sick yet? With all the plant life available (sugarcane or sorghum) that could be used for producing a less costly ethanol; our government pushed for ethanol derived from corn. As we all know it only gets worse; our government pays subsidies (our tax dollars) for corn production to huge corporate farms and to companies that produce ethanol. Sadly, we have Americans who can barely put food on the table as it is; and now our government has made it even harder. Our poor Americans have to rely on government food programs and entitlements to feed their families and make ends meet. This is especially true in the current economy.... the very worst economy that our government is responsible for. Now where does the money come from for these government social programs and subsidies?..... The American people who pay taxes. OUR Government has pulled a real number on all of us...this is a real joke. Other countries think we are a joke for using a major food supply to subsidize our gasoline. 24/7 Wall St. “The high cost of corn has been partially attributed to nearly 40% of the US crop being directed to ethanol production. Some 5 billion bushels of US corn are expected to be used to make ethanol this year.” “The situation with the end of the $0.54/gallon tariff is a bit more interesting. Should this tariff disappear, Brazilian ethanol could find its way to the US where it would undercut corn-based ethanol pricing. US farmers could see a dramatic fall in corn prices as a result. “ Paul Ausick Also as a result in the fall of corn prices food cost would start to decline. Americans would have more discretionary income to spend to boost our economy, which in part would help to create jobs that we so desperately need. The Government would save the corn subsidy funding, reduce the cost of entitlement programs which would lessen the need for raising taxes to pay down the enormous Governments debt that it created and expects the American people to pay for. The benefits are many and would have a worldwide affect. The free trade falls right in line with importing less expensive Brazilian ethanol resulting in a possible lower cost for gasoline and exporting more of our goods to Brazil. This ethanol issue is one of where a few have the benefits of making a lot of money from Government subsidies and basically doing it on the backs of the American people and adding to our hardship. Let’s turn this around and do something good for the American people instead of doing something to the American people; we’ve had enough of that. Please write your Congressman and Senators etc. and tell them what you think about corn-based ethanol. Thanks

8/18/2012 08:10 AM

  One thing some writers omit from time to time is the fact when calculating actual cost of producing and blending ethanol into gasoline, analysts use a tremendous amount of "coulda, shoulda, maybe, if then", etc. Lots of seemingly ironclad variables are in actuality mere hypotheses, guesses, estimates, wishful thinking. Mathematical models makes large numbers of suppositions and this is what forces onlookers to have widely differing notions about the financial feasibility of producing ethanol.

8/19/2012 01:48 AM

  Hey Montie- Great idea. Lets let b Brazil produce all the ethanol and ship it here. While your are at it, why don't we get all our automobiles from Japan, all our oil from Iran,all our clothes from Taiwan. Then we could all get a welfare check from Barrack and go to disneyland