Ethanol inflames grain market

It's grains gone wild.

Corn, soybean and wheat prices exploded Friday after the government said corn stockpiles were shrinking fast amid the ethanol boom. The report fanned fears that ethanol was starting to become a runaway train, as corn prices hit a 10-year high.

Corn and wheat prices Friday rose the daily maximum allowed on the Chicago Board of Trade. Soybean prices soared 43 cents a bushel. In Minneapolis, spring wheat futures rose 25 cents a bushel. So in a single day, the markets added one-third of a billion dollars to the value of grain stored in Minnesota's bins and elevators.

"It's being driven by the mania that's going on in ethanol production," said Ed Usset, a grain marketing specialist at the University of Minnesota. "These (corn-based ethanol) plants are going up so fast we can hardly track 'em."





Ethanol inflames grain market
Corn, wheat prices hit daily maximum

BY TOM WEBB
Pioneer Press


It's grains gone wild.

Corn, soybean and wheat prices exploded Friday after the government said corn stockpiles were shrinking fast amid the ethanol boom. The report fanned fears that ethanol was starting to become a runaway train, as corn prices hit a 10-year high.

Corn and wheat prices Friday rose the daily maximum allowed on the Chicago Board of Trade. Soybean prices soared 43 cents a bushel. In Minneapolis, spring wheat futures rose 25 cents a bushel. So in a single day, the markets added one-third of a billion dollars to the value of grain stored in Minnesota's bins and elevators.

"It's being driven by the mania that's going on in ethanol production," said Ed Usset, a grain marketing specialist at the University of Minnesota. "These (corn-based ethanol) plants are going up so fast we can hardly track 'em."

Friday's market moves were ignited when the U.S. Department of Agriculture reported a lower U.S. corn harvest from last fall and predicted tighter supplies ahead. Foreign growers aren't providing much cushion, either, with world grain stockpiles forecast to be the smallest since the late 1970s.

"We are simply using corn faster than what we're able to produce it these days, and ethanol of course is the big contributor," said Dennis Smith, a commodity broker at Archer Financial Services.

Smith notes that U.S. farmers will plant more corn in 2007, lured by prices nearing $4 a bushel in Chicago. That affects soybean prices too, because more corn means fewer soybeans. But even 7 million additional acres of corn — as much as Minnesota farmers planted in 2006 — won't suffice, Smith warned.

"It's gotta be 8 million (acres) or more to keep a status-quo situation here," he said. "We're talking about a shift in acreage like we've never experienced before, and we're talking about more corn acreage than we've seen in the last 50 years."

The rising price and tight forecast is increasingly worrisome to grain users, said Daryn McBeth, executive director of the Minnesota AgriGrowth Council, a trade group for state agribusinesses.

"Every time I talk to some of our members who are users of corn, primarily the livestock industry and poultry even more so, they're feeling it and worried about it big-time," he said. "We know there is a break-point, and we're getting there."

Meanwhile, the ethanol boom continues. On Friday, US BioEnergy announced that it has begun site preparation for a 100-million-gallon-a-year ethanol plant near Janesville, Minn.

In Chicago, corn futures for March delivery rose 20 cents, to $3.965 a bushel. Soybeans rose 43.25 cents a bushel to $7.175. Chicago wheat rose 30 cents, to $4.865 cents a bushel. At the Minneapolis Grain Exchange, spring wheat for March delivery rose 25 cents to $5.07 a bushel.

"Your average (grain) producer likes it, I think," Usset said of Friday's surge. "But the livestock industry, this is not a fun event for them. They just feel like they're on the bottom of the pecking order."

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