News
How real is the prospect of a looming corn crisis?

The good times have arrived for many in the commodity crops sector and despite
concerns about a potential 'tug of war' developing over food, fuel or feed,
it is hard to worry when corn prices continue to strengthen and optimism continues
to run sky high.

Yet in spite of the high spirits generated by improved commodity prices, economists
and even some researchers have cited 2009 as a possible date for a corn crisis,
at least on a continental basis. Demand for corn by the ethanol industry has
created a broad sense of renewal across agriculture, and not just from a farming
perspective. There are other facets of the agri-food industry that will benefit,
from transportation to the development of new IP protocols for handling, storage
and special uses for corn and its byproducts.

However, there are sources in the US that have expressed concerns over economic
conditions and agronomic impacts of pushing more corn acres across the mid-west.
The opinions vary as much as the number of individuals being asked, yet one
theme is central: the US will have to grow much more corn to meet projected
demand for feed, fuel, food, exports and industrial usage.

Balance sheet is not balanced
According to Fred Evans, manager of grain origination and derivatives for GreenField
Ethanol, formerly Commercial Alcohols in Chatham, Ontario, the potential for
a corn shortage by 2009 is certainly a possibility. "By that time, the
projections in ethanol plants, the ones that are on the drawing board, are for
107 and that's almost double the number compared to right now," he says.
"If that comes to pass, the nine million acres they're talking about needing
right now won't be enough."

FC Stone figures
were released November 29, 2006 and do not include figures for Imports or
Domestic Use. Dow Jones report issued before the November 2006 USDA forecast
indicated 'middle-of-the-road' estimates of 10 million bushels for imports
and 9900 million bushels in 2007/08.

As Table 1 indicates, a blend of forecasts from the USDA, Dow Jones and FC
Stone indicate increases in production through 2009, including yields and total
use.

In his November 29, 2006 report, FC Stone analyst Doug Jackson noted the grain
trade was debating a short-term increase of five to 10 million acres, a multiple
of the previous 3.3 million acre year-to-year maximum increase. "In earlier
work, we have demonstrated that we would need to find eight or nine million
more acres to really have any hope of relaxing trade fears of dramatically tighter
US stocks in 2007/08 as ethanol demand surges," states Jackson's report.

As of December 1, 2006 the USDA reported ethanol production at 5.12 billion
gallons, consuming nearly 1.9 billion bushels of corn, which would jump to 2.15
billion for 2006/07. The expected increase in capacity from new plants currently
under construction and expected to be in operation by 2008 is worth another
3.85 billion gallons, pushing US corn use for ethanol to 3.3 billion bushels.
"Even a slower US ethanol growth rate does not change our overall concerns
about a dramatic tightening of US supply demand to price rationing levels in
2007/08 or no later than 2008/09," cites Jackson.

Impact being felt already
This may be a large part of the reason why prices have increased so rapidly
and almost completely independent of fundamental supply and demand economics.
"On November 30th, we were looking at December corn futures at about $3.76
and two months prior to that, in the middle of September, they were $2.37,"
says Evans. "This is a rally based on anticipation, not on demand. This
one is all hype because they've just had the third largest corn crop ever grown
in the US, yet they have prices that haven't been seen in 10 years."

From a marketing perspective, this volatility may keep some farmers from sticking
to a marketing plan. Evans cites cases where individuals locked in their prices
in March or April of 2006 on December 2007 or Ô08 futures. "When we had
the first leg of the rally up, those months had an $0.80 spread between December
2006 and December '08, and people had bought into this looming shortage of corn
and put their positions on the 2007 and '08 futures," explains Evans. "They've
been losing money ever since. So the market, the traders, the mutual funds or
whomever, are buying up the crop today."

Agronomic impacts debated as well
The impact in the field has been the subject of debate for a considerable time.
Despite assurances from the National Corn Growers Association and some seed
company representatives, Dr. Tony Vyn, an agronomist with Purdue University
and former University of Guelph researcher, questions what pushing corn on corn
will do to fertilizer demand and soil erosion. In an October 2006 article in
Corn and Soybean Digest, Vyn suggested a steadier increase of two percent per
year during the next 10 years would be better than a four percent jump per year
during a much shorter period.

However, Doug Alderman, sales manager for eastern Canada with Pride Seeds near
Pain Court, Ontario, says there may be no choice but to push corn production
harder and higher. He spent time reading through projected stocks to use ratio
and carry-out figures, and found various references to a corn shortage in 2009.
"I agree that ethanol is going to use a portion of that increase in corn,
but the other side of the coin is that US exports into India and China are on
the rise, they're going to continue to be on the rise," he says.

That follows up on a presentation at the Southwest Agricultural Conference
in 2000, in which University of Illinois researcher Dr. Steve Sonka said India
and China will have the fastest growing middle income sector in the world through
2026. That was a reaction to stated concerns about soybean production outpacing
world demand as Brazil and Argentina increased their production levels. Sonka
said North American production can continue to grow as well, since higher income
levels tend to show improved dietary habits, including daily intake of meat.

"And that will happen with corn, either on a direct basis through a feedstock
or putting it through livestock for feed consumption," says Alderman. "And
ethanol just keeps sparking it on the side, too. If you have a trend to improve
our environment, then ethanol's going to be a driver for that, as well."