Good news for ethanol producers like ADM (ADM), Verasun (VSE) and Pacifc Ethanol (PEIX).
The U.S. Department of Agriculture forecast that farmers will harvest 12.3 billion bushels of corn, up more than 570 million bushels from last month’s estimate of 11.7 billion. That’s down 6% from last year’s record crop of 13.1 billion bushels, but 17% above the 2006 harvest.
Average corn prices this year are expected to drop to $4.90 to $5.90 per bushel, down 60 cents from last month’s forecast of $5.50 to $6.50.
Corn prices soared to record levels near $8 after the floods, the worst to hit the Midwest in 15 years. But cooler, wetter weather since then will boost corn yields to 155 bushels per acre, up from last month’s estimate of 148.4, the department said.
Corn prices have already dropped to almost $5 per bushel, though that is still higher than in 2006, when a bushel cost $2.
In its recent earnings release, ADM said it expected to see higher ethanol selling costs this quarter and this news ought to bring down corn costs that saw a “significant increase in the prior quarter.
The recent Kiplinger Reports said that refiners are trying to slip extra ethanol in mixes because of the 88 cents per gallon cost differential. What this means is that there is no demand issue with the product, refiners cannot get enough of it.
We are about 4 billion gallon per year short of making all US gasoline E10. This year the industry will produce roughly 9 billion gallons and the mandate for next year is 11.1 billion. This will easily be absorbed through the system.
It all boils down to increases profits for ADM and the others..
Disclosure (“none” means no position):Long ADM, none
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