No break in feed costs likely in 2007-08

Little corn price relief is in sight for poultry producers competing for dwindling corn stocks as ethanol demand mushrooms.

"It's going to be an extremely volatile year," Terry Barr, chief economist for the National Council of Farmer Cooperatives, said at the International Poultry Expo in Atlanta, Ga., USA, last month.

Barr predicted U.S. average corn prices in the $3 to $4/bu. range both years, but that assumes record-high production from higher plantings, and trend yields of 150 bu./a. Anything less than trend yields will send corn prices far higher, he said. Barr expects corn acreage to be up 8 to 10 million this year, with 6 million acres coming from soybeans. "We need good yields even with higher plantings," he said. For the 2008-09 marketing year, Barr said a 13 billion bushel corn crop will be needed, following more than a 12 billion bushel crop this year. He added that conservation reserve acre contracts expire on some land this coming Sept. 30, "but only 3 to 7 million acres are in the CRP that could come back into production on a long-term sustainable basis."

Barr said, however, that the story "is not all about ethanol," with global carryout in wheat and coarse grains the lowest since the mid-1970s. He does not expect that to turn around much from this year's harvest. That said, the ethanol impact is huge. He noted that ethanol use has doubled to 3 billion bushels of corn within 2 years, and ethanol "potentially will use 5 billion bushels within a few years." If so, "we will need 12 million to 15 million more acres and consistent yields." Barr noted that 110 plants are in operation, another 73 are under construction, with another 200 proposed.

For soybeans, Barr predicted prices of $6 to $7/bu. over the next two years, with soybean meal likely to trade between $175/ton and $190/ton, and upside risk greater in 2008. He noted, for example, that China represents 46% of world trade in soybeans and cotton, and it's probably a mistake to assume that China will give up its soybean imports. China accounts for 87% of the increase in global soybean trade since 1987. "The soybean meal price will pick up in 2008," he said, as carryover dips because more bean acres are converted to corn, with even more upside risk for 2009. For example, he forecasts that soybean ending stocks will decline by 575 million bushels in the 2006-07 marketing year to 250 million in 2008-09, as soybean acres are cut.

In total, said that "no one has been on the right side" of forecasting the growth of ethanol and its impact on corn prices. There's been a downward bias on everyone's estimates."

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