When corn prices peaked at $4.50 a bushel in February, the outcry from editorial pages around the country was deafening. Ethanol was taking food out of the mouths of the poor and was responsible for raising the prices of everything from movie popcorn to filet mignon to cheddar cheese. Farmers, though, didn't miss a beat and responded by planting a record number of corn acres and harvesting a bumper crop. Since reaching that peak, corn prices have slowly glided back toward $3 a bushel in the Northern Plains states. It should be even lower, economists say, but production problems around the world have tightened global supplies.
 
 U.S. farmers reacted to high corn prices as expected, planting more acres to corn than any time since World War II. More than 92 million acres were planted to corn in 2007. Growing conditions have been mostly good leading the USDA to forecast a near record average yield of 155.8 bushels an acre. Total production of corn for the year is expected to top 13.3 billion bushels, nearly 21 percent more than was produced in 2006.
 
 Normally, such a bin-busting crop would lead to huge surpluses of corn flooding the market and tumbling prices. Instead, prices have remained stubbornly above $3 a bushel and crept a little higher as the harvest proceeded. This leads many to wonder, just what is holding corn prices up?
 
 Many Factors
 It's fashionable today to blame ethanol production for the dramatic run-up in agricultural prices but the corn market is much more complex. Ethanol has transformed corn markets but nearly all uses of corn are increasing, including feed consumption and exports. "We're expecting record total use," says Allen Baker of the USDA's Economic Research Service (ERS). "Part of that comes from increased exports. We are also expecting larger [corn use] than last year for ethanol because of all the plants that are being built. When you have more ethanol use and more use for feed and residual and more exports, you have more total use."
 
 About 14 percent of last year's corn crop went into ethanol production. While that is a larger portion than other industrial uses for corn such as high-fructose corn syrup and starch, it was a smaller share than exports and was dwarfed by domestic feed use. "It's important to remember that while exports are a player and ethanol is a player, they are both small in comparison with domestic feed use," says Edward Allen of the ERS. Feed use declined slightly in 2006-'07, in part because some corn was displaced by distillers dried grains. However, domestic consumption is expected to increase in the coming year, although there will be changes in how livestock producers manage their feed use. "There will be some adjustments as feed prices increase," Baker says. "They will shift to other feeds. In the case of cattle, they will keep them on pasture longer and bring them into feedlots for a shorter time. They may also feed them to a lighter weight. With hogs you may have a similar sort of thing, where [producers] market them a little lighter."
 
 Demand for other crops will play a part in future corn supplies. Prices for crops such as wheat and soybeans rose dramatically as farmers planted more acreage to corn. The competition for acreage between crops will be acute in the coming year. "The strength that we've seen in wheat and soybean prices has lead several people to suggest that we will have a huge drop in corn area planted," Baker says. "That would tend to give us a lot more volatility in corn prices than what we have seen so far. We only have so much ground and we are losing about 1 percent of that per year as we build more shopping centers and houses. While it's possible we could plow up shopping centers and houses and whatnot, it hasn't happened and I don't foresee that it will. So that means that there is a limited amount of ground out there."
 
 The decisions farmers make this fall will affect what they can sow next spring. If wheat prices continue to look strong, the winter wheat crop will start eating into corn acres leaving farmers the option of cashing in on good soybean prices. "If you plant wheat, depending on where you are located, you may be able to plant soybeans early next summer and still get a soybean crop off," Baker says. "But you are not going to have time to get a corn crop off. So the ground that gets planted in various crops ties up the ground for that crop and isn't available for other crops. If the demand for the other crops is high and the prices are high and the return to farmers is such that they decide to grow those crops rather than corn, you are going end up with a smaller acreage."
 

 Industries that depend on those crops that lost ground to corn acres this year are already moving to ensure they will have sufficient supplies for next year. Some are even modifying long-standing contracting practices to entice farmers to grow the crops they need. "The brewers are trying to make sure that the farmers aren't going to plant everything to wheat and they will be able to get some malting barley acres out of them," Baker says. "Before they were always able to get all the barley acres they want because they paid a higher price for malting barley. But this year [brewers] haven't been giving a standard price. They're saying, 'Don't forget that we will be there with a contract. In fact, we would like you to sign the contract now but we won't put the price in because we don't know what the price will be. We're willing to work with you depending on what the price is at the time.' So they want to make sure they get their fair share and the sunflower people are probably doing the same thing. All of those industries are trying to make sure there is enough of that crop for a particular purpose. It's not known if there are enough acres to cover all those purposes."
 	
 Export Surge
 Some in the industry predicted that ethanol production and higher corn prices would cut into export demand. For the 2006-'07 marketing year, this wasn't the case. Early indications are that purchases for the 2007-'08 marketing year will be strong as well. Allen says purchases for the first month of the marketing year are ahead of last year. "Sales are up 62 percent compared with last year," he says. "So they have sold a lot of corn for export. It looks like the coming international trade year (which starts in October) is going to start big. The amount of outstanding sales is very large."
 
 Several factors go into determining export demand. "Exports tend to be based on each country's needs for feed grains around the world, the availability of feed grains and the relative prices between countries," Baker says. "With the [value of the U.S.] dollar changing that may well mean that even though our prices are going up the prices in a particular country may not be going up depending on the strength or weakness of the dollar in that country. Then you also have to figure in freight rates and a whole bunch of other factors."
 
 Poor crops in many countries contributed to demand for U.S. corn. However, the overriding factor was the continued growth in total demand for corn. "If you look at where the demand for U.S. corn is coming from and where the changes were, it is really interesting," Allen says. "Last year's corn trade was record large so world demand for corn is vigorous." The European Union, Iran, Mexico and Columbia were among the countries increasing corn imports last year. The EU, because of a ban on genetically-modified crops (GMOs), imported most of its corn from Brazil, but that opened the door for U.S. exporters to some of Brazil's regular customers. The United States wasn't the only country with increased corn exports. Among its competitors, China's exports were up from 2006, but were still well below the previous two years. Brazil and Argentina increased their exports as well, but those increases were dwarfed by the increase in worldwide demand, Allen says. "We did face a lot of competition in 2006-'07," he says. "There is this underlying growth of demand associated with a combination of growing income and increased meat consumption."
 
 The slide in the U.S. dollar wasn't as much of a factor this year as it could be in the coming year, Allen says. "I think the dollar will be much more important when you look at competition," he says. "It's true that the declining dollar makes it cheaper to buy corn with the local currency. But the most important thing is the relative pattern of exports." In particular, the value of Brazil's currency made its corn relatively expensive in the export market. It was the European Union's desire for non-GMO corn that supported Brazil's exports. "The EU stepped in and offered huge premiums for non-GMO corn, as opposed to U.S. and Argentine corn," he explains. "That offset the currency differential. But that is where the currency differential looked like it was going to cause some problems for their agriculture. The EU basically saved them."
 
 Although exports from China are expected to decline, Brazil and Argentina will likely increase their exports. Demand will also increase because of poor crops in places like Serbia and Ukraine. "So it looks like demand will be strong," Allen says. "We're forecasting that exports are going to go from 54 million tons to 57 million tons in 2007-'08. That's the highest exports we've had in years. So we are looking for a banner corn export year."
 
 There will be strong demand for corn on all fronts next year. Allen believes domestic feed use will be stable to slightly stronger while demand for corn for exports and ethanol use will be higher. This means 2008 could be another good year for U.S. farmers. "The majority of demand for corn in the U.S. is for [livestock] feed," Allen says. "Export demand and ethanol demand are sort of in competition. They are clearly both factors. The fact that export demand isn't falling as ethanol demand accelerates is significant. Most people expected export demand would fall as U.S. prices went up. This year, that hasn't been the case. And we are not expecting that to happen in 2007-'08."
 
 Jerry W. Kram is an Ethanol Producer Magazine staff writer. Reach him at <a href="mailto:jkram@bbibiofuels.com">jkram@bbibiofuels.com</a> or (701) 746-8385.

U.S. farmers reacted to high corn prices by planting more acres than any time since World War II. More than 92 million acres were planted and production is expected to top 13.3 billion bushels.

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U.S. farmers responded to higher corn prices by seeding record acres and harvesting a bin-busting crop. While the prospect of an unprecedented corn crop has eased price pressure somewhat, events overseas have kept prices higher than expected.

Corn Marches On

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Corn Marches On