Saturday, August 27, 2011

Demand side as important as supply side for corn

There is a race to the bottom for crop estimates and yields for corn. There is even talk that corn yields could be the worst in a decade as Midwest heat has taken its toll on the crop. Prices are expected to go higher, but there has to a close look at the demand side.

The demand for corn by bioethanol may flatten given the current high prices. The demand by bioethanol has now exceeded that of livestock demand but this may change with structural changes in blend subsidies by the government. Margin will fall as gas prices decline. Livestock herds have been declining as the bite of higher grain prices increase. Wheat crops have been good in Canada so substitutes will play a part in demand. There will be les demand as prices increase so those who think corn is headed to all time highs may be disappointed.


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