Friday, February 20, 2009

Balancing corn and soybean plantings in 2009

US producers are now planning planting intentions for 2009, with the balance between corn and soybeans a key issue. South American production will be a contributing factor to soybean plantings, while bio-fuel use will be an important factor in corn acres.

Whichever way it goes, the area planted for each crop and subsequently the potential production will have an impact on our local oilseed and coarse grain markets. Let’s nut out a few of the issue’s facing the balance between corn and soybeans in the US at the moment.

Firstly, of major concern in the US is demand for corn and the health of the US ethanol sector. The current low prices of crude oil make ethanol production less attractive. Until recently the financial woes of VeraSun, one of the largest ethanol producers in the US, had cast considerable doubt on the future of ethanol production.

But last week saw an offer from Valero Energy Corp – a big oil company – to purchase the company for a third of its construction costs. The purchase will help improve production of corn based ethanol, and also shows that traditional energy producers see a necessary future in ethanol production.

The USDA secretary has also called for an increase in the maximum allowable ethanol blend rate for gasoline which will help boost the industry. The rate is currently set at 10%, which the ethanol industry claims is limiting growth potential.

The maximum allowable biofuel equivalent is the Renewable Fuels Standards (RFS) which has set levels of biofuel use. They call that 10.5 billion gallons be used in 2009, and this is to be increased to 12 billion in 2010. Assuming that these standards are maintained, there will be large increases in the use of corn. It is estimated that in this marketing year 3.6 billion bu of corn will be used in biofuel production.

ProFarmer US has forecast that if corn plantings in 2009/10 remain at the same level as last year, the carryout level for corn would be under 1 billion bu which is dangerously low. This would be supportive to coarse grain prices across the globe. With soybean prices falling sharply on recent rain in Sth America, forward corn and soybean prices are not currently giving a clear indication to producers in regards to which crop to favour. It will be interesting to see if there is a late play for acres by either corn or soybeans. Watch this space.

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