FocusCorn may open US door to Brazil ethanol

02 April 2008 23:05  [Source: ICIS news]

By William Lemos

HOUSTON (ICIS news)--The continuation of a spectacular rally in US corn prices on Wednesday is opening the door to an increase in imports of ethanol from Brazil, market sources said.

“I have been monitoring [US corn prices] all day,” one producer in Sao Paulo said.

The producer hopes that the latest surge in corn futures will push US ethanol prices up far enough to re-open the arbitrage window.

Corn has jumped this week amid heavy rainfall in the midwest and following an official projection that the US will plant less corn this year.

The US Department of Agriculture (USDA) predicted on Monday that US farmers would plant 86.0m acres of corn in 2008, down by 8% from last year’s 63-year high.

Favourable prices for other crops, high input costs for corn, and crop rotation were motivating some farmers to plant fewer acres of corn this year, USDA said.

Prompt corn futures in Chicago closed at 11 cents higher at $5.95/bushel on Wednesday, after hitting an intraday high of $5.99. Forward futures also rallied, with July ending at $6.09, September at $6.07, and December at $6.03.

Corn futures were below $4.00/bushel a year ago and were below $2.50 in early 2006.

Wet weather across most of the midwest was contributing to latest rally in corn, as the moisture could push back the start of planting, a US ethanol producer said.

But another US producer pinned the blame instead on investment funds for driving up all commodities, not only corn.

Soaring corn prices spell big trouble for the US ethanol industry, already struggling because the price of the biofuel has significantly lagged that of the feedstock.

USDA expects corn prices to average $3.75-4.25/bushel in the 2007-2008 crop year, up by 30% from $3.04/bushel assessed by USDA for 2006-2007.

In contrast, ethanol fuel prices have gained only about 7% in the last 12 months.

Anhydrous spot ethanol in Chicago was assessed at $2.48-2.50/gal in the week ended 28 March, up from $2.30-2.35/gal a year ago, according to global chemical market intelligence service ICIS pricing.

In addition to the cost pressures, the US ethanol industry is drawing fire for its appetite for corn as a feedstock.

USDA estimates that ethanol production consumes a quarter of the US corn crop, a factor that critics argue is a main factor behind surging US food prices.

The US ethanol industry rejects the notion that the biofuel alone is responsible for the rise in grocery bills, with the Renewable Fuels Association (RFA) claiming the culprit is actually crude oil.

“To make ethanol the scapegoat for all these ills completely ignores the complexities of world agriculture and energy markets…not the least of which is the record price of oil,” the RFA declared in March.

Criticism of the ethanol industry was “misleading and diversionary”, it said.

For more on ethanol visit ICIS chemical intelligence

Bookmark Simon Robinson’s Big Biofuels Blog for some independent thinking on biofuels
By: William Lemos
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