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Higher ethanol production will aid corn prices
By MICHELE F. MIHALJEVICH
Indiana Correspondent

FORT WAYNE, Ind. — Corn producers are on the cutting edge of alternative energy production and should market their crop accordingly, a market analyst said last week in Fort Wayne.

“Producers should look at their crop as a renewable energy resource,” said David Kohli of Ford & Young Futures in Fort Wayne. “There is likely to be an increase in ethanol production later this year.”

Kohli spoke Jan. 17 at the 25th Fort Wayne Farm Show.

Current USDA estimates project corn for ethanol production at 1.575 billion bushels, he said. Analysts are predicting an additional increase in ethanol production of about two billion gallons in the next year. This amount would mean nearly 775 million additional bushels of corn would be needed, he said.

Speaking with Kohli was Jon Cavanaugh, marketing director of Central States Enterprises, New Haven, Ind.

There will be an increase in ethanol production but overall, the market is disappointing, Cavanaugh said.

For the sixth consecutive year, the prediction for U.S. corn exports falls short of two billion bushels, he said. The USDA has predicted 1.85 billion bushels in exports.

The overall market outlook for corn is not good, Cavanaugh said.

“They’re projecting a 2.426 billion bushel carryover,” he said. “That’s a huge carryover. Anything over one billion is enough.”

Despite a lower average corn yield nationwide, an increase in the total number of harvested acres led to more corn produced, Kohli said. About 2 percent more acres were harvested in 2005 over 2004. Average yield nationwide dropped from 147.9 bushels per acre last year from 160.4 in 2004.

“We’re definitely in a bearish or negative supply driven market for the next few months as we have to deal with a bigger supply,” Kohli said.

The outlook for corn production in Indiana and Ohio looked bleak earlier last year, Cavanaugh said.

“We all got fooled last year,” he said. “Indiana and Ohio were on the verge of disaster when the rains came last July. “In addition to increased acreage, more corn was harvested because of improved management practices and improved hybrids that can stand a lot of stress.”

The carryover in soybeans is also extremely large, Cavanaugh said. A 500 million bushel carryover is projected by the USDA.

Carryover is greater than earlier projected because of hurricanes that hit the gulf last year, Kohli said.

“Capacity at our ports around New Orleans has been cut back because of hurricane damage,” he said. “Because we can’t get our product out, many folks are switching their business to South America.”

The biodiesel market is important to soybean producers, Kohli said.

“Biodiesel is so easy to make it’s ridiculous,” he said. “I was thunderstruck. I’d love to see B-100.”

Cavanaugh is a bit more cautious about the potential for the biodiesel market.

“It takes awhile to build the plants and the demand for biodiesel is down,” he said. “The market is having trouble disposing of soybean oil.”

The soybean market is hurt by the huge U.S. carryover and a larger than anticipated crop in Argentina, Cavanaugh said.

“Suddenly the world is flooded with beans,” he said. “If you can sell them over $6, you should.”

Published in the January 25, 2006 issue of Farm World.

1/25/2006