Grain prices plateau and the end for corn ethanol
Rich KellerWilliam Lapp, grain economist with Advanced Economic Solutions. Grain prices have gone to another plateau from which they should not drastically fall but aren’t likely to climb for many years either. That doesn’t mean less volatility while completing the transition to this higher plateau. This opinion comes from William Lapp, grain economist with Advanced Economic Solutions.
Lapp noted that charting shows there was a new plateau in grain prices, especially corn, during the 70s and a new up-push of grain prices began as early as 2002 so that there is another new plateau being established for commodity grain prices.
He sees three key factors that have driven commodity prices to record levels:
- Strong global economic growth in agriculture led by developing economies such as China.
- Weakening of the U.S. dollar since 2002.
- Biofuels policy for grain use in the U.S.
“Growth of developing economies will drive energy prices during the next decade,” Lapp said. World crude oil production is up, but rich countries are using less while emerging countries are using much more.
He further noted, “World coarse grains consumption is up 15 percent since 2005, all devoted to ethanol production.”
He contends there will continue to be strong biofuels demand, but questions if “the corn ethanol story is nearing an end.” He sees cellulosic ethanol replacing corn ethanol quickly once the science has progressed to a level of sophistication for low-cost cellulosic production.
Lapp repeated what many have said in suggesting how important China’s prospects for demand of grain, food and energy are to the economics of agriculture and nations’ economies around the world.
At the moment, worldwide corn production acres are equal to all the other commodity grains’ production acres combined, he said, but oilseed acres will have to increase dramatically in the coming years to meet demand. Higher demand will be for food uses although biofuel could continue to be a percentage of the market. Diesel is such an important fuel worldwide, and biodiesel can fill a need.
Lapp spoke to agricultural media during the Bayer CropScience Ag Issues Forum in Nashville, Tenn.