COLUMBUS, Ohio — U.S. growers may be enjoying a bumper crop of corn this growing season, but are facing two consequences as a result: low prices and no storage room.
According to the U.S. Department of Agriculture, the nation is seeing over 11 billion bushels of corn, 15 percent larger than last year's record.
"All Eastern corn belt states, except for Minnesota and Wisconsin, are reporting record corn yields this year. The result is lack of adequate storage space," said Matt Roberts, an Ohio State University agricultural economist. "What does this mean? One thing we see is a situation where forward prices are significantly higher than nearby prices. That's the market's way of saying don't give us your corn. Wait and sell it later."
National corn prices currently are sitting at about $2 a bushel, while Ohio corn prices are averaging about $1.70 per bushel. Forward prices in May, for example, are projected to be 15 cents to 16 cents higher than December prices.
"At the same time," said Roberts, "we are seeing grain elevators starting to impose what are called dump charges, where they discount the price of corn if a grower shows up."
Because of lack of grain storage space on and off the farm, growers are opting to leave their corn in the field longer than anticipated. The risks could mean damage to the corn, but at the same time, may be a better option than facing insect-damaged, moldy grain piles and a low-quality product.
One bright spot with the record yields and low prices is a more compelling push for ethanol production.
"When you see corn prices dropping and gas prices increasing, the relative cost of ethanol compared to gasoline is that much more beneficial," said Roberts. "Remember that initially, ethanol production was driven by ethanol replacing MTBE in gasoline because of environmental concerns. Now it's really being driven by a difference in prices, and now, in many areas, ethanol is much cheaper than gasoline."
With record-breaking soybean yields and low soybean prices, biodiesel production is also facing a promising future. U.S. soybean yields are currently sitting at 3 billion bushels, with prices hovering in the $5 range.
"The economic argument for blending soy biodiesel into diesel is probably even more compelling than the ethanol market right now," said Roberts.
Biodiesel has recently become exempt of highway taxes that apply to diesel production. In addition, there is a push to remove nearly all sulfur from diesel by 2006. Sulfur acts as a lubricant in the fuel, and biodiesel serves as the best alternative to replacing that role.
"Over the next six to 12 months, I expect to see an acceleration in biodiesel production," said Roberts.