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Source: Tom Johnston, MEATINGPLACE, 7/17/12
It’s got to be bad when the discussion over corn supplies amid a severe drought in the Midwest gets to some never-used clause in federal law that authorizes the Environmental Protection Agency to reduce from 10 percent the mandated amount of ethanol to be used in gasoline blends.
But, as market analysts Eric Scholer (Express Market Inc.) and Len Steiner (Steiner Consulting Group) gave their takes here Monday at the National Chicken Council’s Marketing Seminar, the discussion did go there.
Suffice to say the outlook isn’t good.
“It would have to start raining today and continue raining for four to five days, and the average temperature would have to come down to 80 to 85 degrees, and even if I saw that I’m not sure we’d get yields above what USDA projected in its last estimate,” Scholer said when asked for a best-case scenario.
Last week USDA cut its U.S. corn crop estimate by a massive 1.8 billion bushels, to 12.97 billion, and slashed its livestock feed use forecast by 650 million bushels. Meanwhile, the agency took the ax to its corn yield estimate by an unprecedented 20 bushels per acre to 146 as what’s projected to be the worst drought since the disaster of 1988 showed its teeth.
“At some point in time we’re at a critical time,” Steiner said, who predicts a yield of 143.2 per acre with a 5 percent carryover. “If we don’t get rain the next two weeks in the Midwest, it’s not going to hold 146; it’s going to trend toward 135. Then we’re going to have to decide who really wants to eat.”
Though some analysts have suggested that continued deterioration of the corn crop could lead to $10-per-bushel prices, analysts and producers here aren’t convinced they’ll go that high but certainly don’t expect any relief from the $7.50 to $8.00 range.
Steiner said a reduction in the ethanol mandate could provide some relief, but the EPA doesn’t have a history of pushing the panic button afforded by current law. In 2008, Scholer noted, Texas Gov. Rick Perry requested EPA do so, which prompted a study into whether the mandate was causing economic harm, the agency’s litmus test. The agency determined the mandate did not. The process of coming to that determination took more than six months.
Through the first five months of this year many major chicken producers were profitable. In June the USDA was projecting a record corn crop. Only some weeks later the agency made its dramatically reduced projections, hardly time for chicken producers to make adjustments yet.
“I don’t think there’s been a lot of time to really react as far as making any production changes because we’ve had such a quick run-up in the markets,” Scholer said. “When looking at our production expectations, there’s a good chance we’ll see some pullback in the coming months.”
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