03/09/07 Estimating the Market

Estimating the Market. I'm Greg Martin with today's Line On Agriculture. The prestigious Food and Agricultural Policy Research Institute "FAPRI" is out with its 10-year ag economic estimates report to congress. And the numbers show higher corn prices and a resulting squeeze on livestock profits from strong ethanol demand. FAPRI's prediction of 86-point-7-million corn acres in 07/08 is almost identical to USDA's recent estimate. USDA pegged corn prices at around 3-60 a bushel. FAPRI slightly above 3-dollars in every year of its 10-year baseline. FAPRI says high corn prices will bring 8-point-4 million new acres to corn this year. USDA predicts 8-point-7 million. And ethanol is the key driver - according to FAPRI's Pat Westhoff at the University of Missouri. WESTHOFF: If you look at 2007/2008 again we're using about 3.16 bushels of corn to produce ethanol. Our U.S. production of in-house corn in 2007 is projected to be 12.15 billion bushels so it is roughly the ¼ cited in the USDA figures for 2007. By the time you get to 2009 on the other hand we're over 4 million bushels on a total production by that year of 12.97, so it's not quite a third but it is over 30% by the time you get to 2009. While corn gains acres - FAPRI says soybeans give up the most - falling to 70-point-5 million this year - from 75-point-5 in 06. Wheat acres increased to over 60-million this year - but FAPRI expects that to drop to 57-million by 2016. Fapri says - as USDA did earlier - that if tax credits expire - biofuels production, corn and soy oil demand and crop prices could be sharply lower. Alternatively - if corn prices get too high - or oil prices too low - that could remove profits from ethanol plants. WESTHOFF: Once we get past 4 billion bushels of use of corn for ethanol we kind of level off at that point. What's happening is that the net returns of ethanol productions are being squeezed from both sides by our corn prices meaning it costs more to produce ethanol, and with more ethanol being produced and a little bit of a drop in oil prices perhaps in front of us, that means that the price people can get for selling ethanol is coming down so the net of those two is that what happens could vary good margins for ethanol producers and over the last couple of years shrink to a much narrower margin in front of us. The ag committees and USDA will use FAPRI's report to help analyze the 07 farm bill. That's today's Line On Agriculture. I'm Greg Martin on the Northwest Ag Information Network.