USDA did not cut its estimates of U.S. corn demand any further in last Monday’s supply/demand report, but odds are that it will have to make more cuts in coming months due to negative ethanol industry margins, reduced livestock numbers and the continued weakness in the general world economy.
Although some of the U.S. ethanol plants idled this winter are expected to be brought back on line in coming months, the outlook for the ethanol industry remains gloomy due to negative operating margins and low gasoline prices.
Plans appear to be in the works in Washington D.C. to grant fuel blenders at least a temporary waiver from the 10.5-billion-gallon renewable fuel usage mandate for 2009 because it is looking increasingly likely that there won't be enough ethanol produced to meet that mandate.
Aventine Renewable Energy appears to be the latest major ethanol producer to find itself in a financial bind due to last year’s high corn prices and falling demand for ethanol.
Industry analysts on Tuesday warned that Aventine will have difficulty meeting a $15-million debt payment that is due on April 1.
Aventine’s corn-purchasing strategy, coupled with payments for new plants, may have depleted the company’s cash reserves and available financing, several analysts who follow the company told Dow Jones News Service.
Aventine reportedly purchased nearly half of its corn at prices that were more than $1.25/bu. above the average price of corn for November and December.
While export demand for U.S. corn has strengthened considerably over the past month or so, it is doubtful sales for 2008-2009 will reach USDA’s current projection of 1.750 billion bushels.
Even though U.S. corn export sales have topped 40 million bushels four weeks running – hitting a marketing year high of nearly 61 million bushels during the week ended Feb. 5 – total sales commitments for 2008-2009 delivery are still running more than 45% behind a year earlier, with USDA forecasting only a 28.9% drop in exports.
Based on daily export reports from USDA, the market should see another large U.S. corn export sales total for the week ended Feb. 12, but, the sales rebound may soon fade in the face of competition from South America’s new corn crop. The availability of cheap feed wheat will also continue to limit U.S. corn export this spring.
Argentina’s corn exports will be down sharply due to the drought in that country, which USDA projects will slash corn production there by 35%, but Brazil is expected to pick up some of the slack.
Even though its own corn crop has been hurt by dry weather and is expected to be down about 15%, Brazil has large old-crop corn stocks to fall back on for exports.
USDA now expects Argentina to export only 7 million metric tons of corn in 2008-2009, down from 15 million tons in 2007-2008, but sees Brazil’s corn exports rising 2 million tons from last year to 9.5 million.
Asian feed makers have been active buyers of U.S. corn this month, mainly because they put off purchases as long as possible this winter due to the weak economy.
South Korea’s January corn imports were down 32% from a year earlier, with imports of U.S. corn down 50%, according to data released on Tuesday by the Korea International Trade Association.
Asian buyers should remain cautious and may largely disappear from the U.S. corn market until late spring once they have covered their second quarter needs.
Japanese buyers have purchased around 1.2 million metric tons of U.S. corn for April-June delivery over the past two to three weeks, but are in no rush to stock up on corn as they expect corn prices to remain stable at least until May, when the new U.S. crop is sown, a trader in Japan told Reuters News Service on Monday.
Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.