The most likely downside risk to both corn and soybean profits stems from the potential for the general economy to weaken significantly in 2012 and bring commodity prices lower, similar to what occurred in 2008, when corn prices dropped from $7/bu. to $3.50/bu., cautions Hart. “With economic issues in Europe, China and the U.S. still hanging over the marketplace, the potential for corn to drop to $3/bu. is still there,” he says. “However, the upside potential for corn is also still pretty strong, with ample concerns over drought and a potentially inadequate crop in the U.S. to meet global demand. So, due to the high volatility in the market, $7 corn is also possible for 2012.”

Ethanol could also play a role in the supply and demand for 2012 corn. “Right now, the big ethanol subsidy, the volumetric ethanol excise tax credit, is gone,” says Hart. “That was a 45¢/gal. tax credit for ethanol, or a 4.5¢/gal. tax credit for E10 (10% ethanol) blends, which is the ethanol blend in almost all U.S. gas.”

Still, even without this significant tax credit, ethanol blending margins continue to be profitable, he points out. “Data over the last two to three years shows ethanol can be competitive as a fuel, either with or without tax credits,” says Hart. “Plants are still producing ethanol at a pretty good clip. It’s still the cheap product to blend with gasoline, and so things are still looking pretty good for the ethanol industry.”

The Renewable Fuel Standard (RFS) calls for 13.2 billion gallons of ethanol to be blended with gasoline in 2012, compared to 12.6 billion last year, he adds. Hart notes that the ethanol industry has always been able to meet and exceed the RFS blending level targets.