Source:  Lisa M. Keefe, MEATINGPLACE.COM, 1/14/11

As prices on corn futures contracts jumped to their highest price in almost 30 months this week, protein analysts hammered home a familiar refrain for the protein industry: Less supply, more demand, higher prices. Some added “potential political unrest” to the mix, as well.

On Thursday, the price on corn for March delivery rose to $6.42 a bushel, the highest price for an active contracts since July 2008 when corn futures rose to $7.99 a bushel. This, on the heels of the USDA’s projections that corn stocks will fall to 745 million bushels, the smallest cushion for that grain since 1996.

“I think there’s a lot of discomfort from a policy standpoint and just from an industry standpoint of having year-ending stocks at 5 or 6 percent of consumption. That just provides no buffer year-to-year,” Darrel Good, from the University of Illinois, said in a presentation to the Northern Illinois Farm Show on Thursday. “We do need to see that rebuild somewhat.”

According to a report in the (DeKalb, Ill.) Daily Chronicle, Good noted that the current rally began back in June, and encompasses not just corn prices but also soybeans. Among the factors pushing prices higher are drought in Russia and Argentina, expectations for a smaller-than-expected corn crop domestically, strong demand for soybeans in China, a strong market for ethanol and poor conditions for the winter wheat crop, the newspaper said.

Meanwhile, USDA predicts 4.9 billion bushels of corn will be used to make ethanol in 2011.
Good does not expect corn prices to come down for several months yet, at least. Ultimately, producers likely are going to have to decide if they can continue to use corn as the primary feed for livestock.

As outlined by Steve Mayer and Len Stein in the Daily Livestock Report, the expected corn stockpiles amount to only a three-week supply. “We still agree that America will not run out of corn but it is pretty likely that some Americans will run out of corn or have a tough time finding it in a timely manner come August and September,” they wrote.

Demands are reducing the supply of other types of feed at the same time, they said. Distillers dried grains are increasingly popular among export markets, and other grains such as sorghum, barley and oats also are in relatively tight supply.

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