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Market Plus: Dec 09, 2005

posted on December 9, 2005

Market Plus: Dec 09, 2005

Pearson: Welcome to the Market Plus page here at our Market to Market Web site. Glad you found us. I'm Mark Pearson. With me this week (is) our senior market analyst, John Roach. And John, it's been interesting. We produce these huge crops, 11 billion bushel crops; we have a drought; we wind up with 2.4 billion bushels carry out, according to USDA's number on Friday. And yet on the show tonight you were talking about corn, the worldwide situation. Even with that, it's still relatively tight. What is going on with this corn market? What do producers need to be aware of?

Roach: Maybe I shouldn't have used the word tight.

Pearson: Well, they were favorable; you said they were favorable.

Roach: What I see is that even though we've had this big production we are not getting into a huge surplus situation worldwide. And that means that we must raise a big crop this upcoming year at a time when it's questionable as to whether producers will shift away from corn over toward beans or not. And the bright spot, of course, in the corn market is ethanol. That is the real growth factor. We're not doing that good on exports, we're not doing that good on increased feed consumption, but we are certainly seeing big increases in ethanol.

Pearson: What is the future for ethanol; for producers out there, many of whom have an investment in an ethanol production facility?

Roach: Well, first of all, congratulations on having chosen an investment in an energy product that in a well-managed ethanol plant. It's been quite a profitable year. What I think producers should be thinking is they should be thinking about the value of their grain as an energy product and focusing heavily on what that value could be if they did the right kind of things. And one of the right kind of things is, right now when you have Detroit really hurting with layoffs and problems in trying to compete with the Japanese imports and the Japanese cars manufactured in this country, it's an excellent opportunity for American farmers to team up with the unions and the factories in Detroit and to really power into more of an alcohol-dominated energy supply, rather than petrochemical. I think it's a wonderful opportunity and so I think if producers would look at this at a five-year or 10-year window, they'd see that what they could do is they could change the whole nature of agriculture in this country if they focused on working together with the people that can actually consume their product -- educating consumers on the value of alcohol, increased percentages of alcohol in the gasohol that we sell, and increased percentages in the number of vehicles that run on E85 or even a greater mix of alcohol.

Roach: The Brazilians did that; after the last energy crisis, the Brazilians said, 'We can't be dependent upon imported oil.' They switched their fleet around. Now a fuel that is pumped into a vehicle is 25% alcohol whereas the maximum here is 10, or they have a fleet of 2.5 million vehicles there that will run on complete alcohol or on several different various fuel mixtures. We can do that same thing in this country but it's going to need to be driven by farmers and coalitions formed with farmers and ecologists and people that are in the automotive industry would be a powerful, powerful coalition.

Pearson: It'd be a great opportunity to increase that corn amount. If you make ethanol you produce either a wet or a dry feed byproduct and so I think there is a consumer misconception that we're using corn to make fuel when in fact all we're doing is using the starch and that does leave behind a great feed material. Is that going to be where we're going to see livestock start to concentrate near these facilities?

Roach: It would really make sense because the cost of drying the brewer's grain that comes out of the ethanol plant consumes a lot of energy; much better to sell it as a wet product that is 50-60 plus percent moisture, rather than to transport that water the distances we are currently.

Pearson: Alright, well John Roach, as usual some great insights. We'll see what happens ahead with the corn and soybean markets. I want to thank you. And from all of us here on Market to Market, I'm Mark Pearson. Have a great week.


Tags: agriculture commodity prices corn crops markets news USDA