LONDON, Ohio — The ethanol market has grown 35-45 percent annually the past several years, and 2008 marks the fourth year of the ethanol boom, Ohio State University ag economist Matt Roberts explained to Farm Science Review visitors on Sept. 19.

Is the trend likely to continue? One factor fueling the ethanol market is mandates - such as the 10 percent ethanol blends in Minnesota and 5.7 percent in California.

Ethanol-powered vehicles get 25 percent lower mileage - 24.8 percent to be exact - Roberts added about a recently completed study. However, consumers don’t care about miles per gallon; consumers care about miles per dollar, he said.

To increase use, ethanol has to sell at a discount to gasoline, Roberts said. Corn prices have increased by a third and ethanol prices have decreased so there’s a big margin squeeze for ethanol producers.

“Success in the ethanol industry will be determined like any other commodity - by margin. Management is key,” Roberts explained.

In the next 18-24 months, Roberts expects a dramatic decline in the number of ethanol plants coming online.

“For the 2007-08 market year there’s no worry about physical corn availability,” Roberts said.

However, based on December 2008 futures prices, the market is starting to get worried about the 2008 harvest. Another 500 million to 1.2 billion bushels will be needed in 2008.

“The market is saying we can’t let prices fall too far because we don’t want to discourage planting,” Roberts said.

Battle for soybeans
Soybean storage concerns are pressuring prices.

“Harvest basis will likely be very wide this fall as the market looks for storage for 15.5 billion bushels of corn and soybeans,” Roberts said.

“Less soybean acreage in the U.S. and Brazil are contributing to the 300 million bushel lower worldwide soybean inventories.”

The market said if the shift in corn acreage is too large, there won’t be enough soybeans to meet demand.

“The net effect is, in the December, January, February time, there could be a big run-up in prices,” Roberts explained. “The market is trying to bid acres,” he said about the post-harvest rally.

In January, February or March, look at owning 2008 corn at $4.25 on the board and 2008 beans at $9.50, Roberts suggested.

Roberts speculated that there’s a one in 10 chance for soybean prices to reach adolescent levels.

“I think we need a significant yield event,” Roberts added. “We are overdue for a significant nationwide drought.”

Wheat prices strong
Another factor figuring into the market is wheat prices.

“Six dollar wheat will pull more acres into wheat,” Roberts said Wheat has gone up tremendously - $5.95 in July compared to $8.46 in December.

Watch for pricing opportunities. Strong wheat prices may be available at planting but not at harvest.

“I’d strongly suggest starting to market wheat at $5.95 and $6 basis the CBOT. If yields are average, I expect harvest prices to be in the $4.75 range,” he said. “If ever there would be a year to double crop beans, this would be a year to do it.”

Old crop strategies
“Selling off the combine you will get killed on basis if you try to do delayed price,” Roberts explained.

Deliver the physical product and re-own on paper, Roberts suggested. February-March is expected to be the best time to sell, with a 20-25 cent increase on when the grain is delivered.

Those who store until April or May should be able to pick up 50 cents a bushel in corn compared to harvest price.

Roberts expects livestock demand to remain strong.

“Four dollar corn tastes great to $80 hogs,” he said.

The cycles are long and demand is strong for all livestock except poultry and eggs. Poultry has shorter cycles.

The corn-to-bean ratio is typically 2.5:1 (soybean prices are 2.5 times the price of corn). At press time, the ratio was about 2.25:1.

In January-February 2007, new crop corn averaged $4.08 and soybeans averaged $7.96 for ratio of 2:1 which led to11.4 million less soybean acres and 14.6 million more corn acres. Many analysts are predicting that corn will lose up to 2 million acres in 2008, Roberts reported.