More than a couple of times in the past year I've heard the phrase, "High prices cure high prices." Couple that with the fact that commodities historically operate in a cyclical fashion, and the hysteria over how ethanol's impact on corn prices was single-handedly driving up prices seems even more unfounded than it did earlier this summer.
Ethanol producers churned out a monthly record of 614,000 barrels per day in July, which is the last month for which data is available from the Energy Information Administration. While that number may drop as demand for all energy (oil, gasoline, diesel fuel, etc.) falls due to an economic slowdown, it would seem to indicate there were plenty of other reasons for this year's price spike in corn.
A recent article would seem to indicate that. "Heavy demand for corn from ethanol makers was seen as a key driver of corn futures to record highs in June, but since then the sharp decline of corn along with other commodities shows that belief was mistaken," the article begins. The full article is available here:
http://www.guardian.co.uk/business/feedarticle/7914436.
Common sense tells us that the increase in demand from using one-third of the U.S. corn crop for ethanol and distillers grains production would help boost corn prices. Common sense should also tell us that the same scenario wouldn't create a price bubble the likes of which were seen in June. After all, commodity markets are cyclical, and high prices do cure high prices.
Meanwhile…
This week marks the last full week of the presidential election race. All candidates are putting on a full-court press as the final days of the campaign wind down. Even John McCain, who has received some criticism for his opposition to U.S. ethanol subsidies, was in Iowa on Sunday. No doubt, the candidates will be making a flurry of stops this week trying to gain the final few undecided voters.
Another sort of flurry hit the Upper Midwest this week, and it's having an impact on the already delayed fall harvest season. On the same day McCain campaigned in Iowa, I woke up to a preview of winter. The Fargo, N.D.-area received an Oct. 26 record of 1.4 inches of snow. As an added bonus, we received 55-mile-per-hour wind gusts. It's not unusual for snow to hit the region before Halloween. However, the wet fall weather has been outside the norm, and it's showing up in the harvest reports.
The USDA reports that the country's corn harvest is 29 percent against a 53 percent five-year average. This year's late planting season is the primary culprit for the lag. Here's to hoping that the weather shapes up and new-crop corn starts finding its way off the field.