With an 11.6-billion-bu. U.S. corn crop headed for the bin this year, it's hard to imagine a tight corn supply on the horizon, says Bob Wisner, Iowa State University (ISU) Extension economist. However, that's exactly what he and other grain industry analysts expect soon, as long as China stays out of the export market.
"As we look ahead, there are currently 11 new ethanol plants under construction in the United States and 60 more being planned for construction," Wisner says. "When all those plants are completed, three to five years in the future, that's enough demand by itself to create the need for farmers to plant additional corn acres here."
Despite low corn prices now, "the stage seems to be set for strengthening corn prices in the next three to four years," Wisner says. "The ethanol trend is far from completed yet. More ethanol production will create much more competitiveness in the basis price for corn."
Wisner predicts that, as competition for bids increases, ethanol plants may sometimes be bidding over nearby futures contracts for corn. "There may be short-term basis opportunities for farmers who have long-term storage capacity and semi-trailer trucks to haul 30 to 50 miles away," he says.
However, corn production in other countries also will affect future U.S. corn prices, Wisner says. Chinese corn production will have the biggest potential effect.
"The grain industry is putting a 75 to 80% likelihood of China exiting the corn export market in the next few years, but the historical track record says to be careful," Wisner cautions. "China has been a major corn exporter since the 1980s, except for two times -- the 1994/95 and 1995/96 marketing years."
In the event that China actually does stay out of the export market, Wisner says, "we will need to grow a lot more corn to meet demand."