As market eyes turn toward corn-planting intentions, consider this perspective offered by Richard Perrin, University of Nebraska ag economist in a recent issue of “Cornhusker Economics.”

“Corn ethanol cannot compete with $40 oil unless corn price is below $2.50/bu. with the current blenders’ credit, or $0.85/bu. without that credit. Looked at another way, with current corn price of about $3.50/bu., corn ethanol cannot compete unless oil prices rise to at least $55/barrel,” Perrin says. “Without the blenders’ credit, oil price would have to be at least $80/barrel for ethanol to be able to compete.

“The federal biofuel mandate calls for 50% more corn ethanol by 2015. If the mandate holds, price premiums for corn ethanol will rise until the incentive for that quantity is achieved. Corn ethanol will be profitable. But faltering public support creates concern that the mandate may be changed, and that the blenders’ credit may expire. In that case, the only hope for a profitable industry is that oil prices rise to $80/barrel or more, so that the industry can afford to pay $3.50-$4/bu. for corn.”

In his Feb. 16 “Weekly Outlook,” Darrel Good, University of Illinois Extension ag economist, explains current uncertainty about producer intentions to plant corn and soybeans revolves around at least these three factors:

  • “The prices of 2009 crop corn and soybeans continue to fluctuate, giving mixed signals to producers about the likely relative profitability of corn and soybeans in the 2009-10 marketing year.”

  • “There is considerable uncertainty about the relative cost of producing corn and soybeans in 2009. Fertilizer prices were very high in the fall of the year, but have recently declined, at least for some ingredients in some markets. The cost of producing corn in 2009 could vary substantially among producers. The distribution of producers who have paid high input prices and those who may pay lower prices could influence planted acreage, but that distribution is not known.”

  • “The sharp decline in winter wheat seedings and expected decline in cotton acreage in 2009 will result in additional acreage for other spring planted crops. The magnitude of that acreage is not known with certainty because some acreage could return to non-row crop production or be idled due to expectations of tighter margins for row crop production. In addition, the large decline in seedings of soft red winter wheat may result in fewer acres double-cropped to soybeans.”
USDA’s first estimate of plantings will be issued March 31.

Click here to see Perrin’s complete article.

For more of Good’s perspective, click here.