Commodity prices: Young marks commodities as 2013 focusWritten by Saige Albert
“One area that ag as a whole needs to come to grips with is the renewable fuels standards (RFS),” Young commented. “I also want to visit about the new price volatility environment that we have found ourselves in.”
“Today, we have production of 12.5 billion gallons of ethanol,” said Young. “We have already backed off by a couple billion gallons each year.”
As the ethanol industry also responds to higher input costs, Young commented that he strongly believes that ethanol plants will be closed this fall as a result of high costs.
Despite concerns about corn availability moving into the future, EPA denied a request by several states to waive current RFS requirements, which mandate the amount of ethanol to be produced each year.
Additionally, the levels of fuel required by the renewable fuel standard will exceed the amount of ethanol needed to blend with gasoline.
“In 2013, the RFS jumps above what our needs are to blend a 10 percent mix with gasoline,” Young noted. “When the RFS was written, it was written with the idea that we were consuming 144 billion gallons of gas per year, with the expectation that growth would continue.”
However, with economic downturn, gasoline use decreased, and the RFS was not adjusted to reflect that change.
“There is not the consumption out there that was in place when the RFS was developed,” Young commented, “and that is a challenge we will have to deal with in the not too distant future.”
Though many argue against use of corn for ethanol, Young noted, “The best economic use of corn is to the energy content and put through our tailpipes, and take the protein value and put it through our livestock.”
With higher prices of oil and gasoline and corn, considering economic efficiencies is important, he added.
Ethanol is also an export product for the U.S.
“We are exporting ethanol at a good clip,” he said, mentioning that Brazil is a large export market for ethanol.
At the same time the U.S. exports ethanol to Brazil, we are importing the product from the same country.
Corn price volatility
“The new price volatility environment that we have found ourselves in is not necessarily ethanol driven,” he added, mentioning that corn yields trends have shown an unprecedented downturn.
“We have three years of below-trend corn,” he stated. “I can’t find any other time, as far back as data is kept, where we have three years in a row of below trend yields.”
The resulting anomaly came as a shock after 15 to 20 years of stability in corn yield patterns, he said.
“Why were we so stable them, and why are we looking at so much volatility now?” asked Young. “I don’t have an answer to that. Some say that climate and genetics play a role, but I don’t think anyone knows what the real driver is.”
“My corn price predictions for next year include something with a seven or eight, or something with a three or four,” Young predicted. “This is the environment we are in at this time.”
Young noted that it doesn’t take much of a short crop to result in the seven and eight dollar corn prices we are seeing today, but increases in availability will result in price drops.
“The corn price is totally dependent on weather forecasts,” he said. “At this point in time, I wouldn’t be buying much feed ahead. My recommendation is to be very hand-to-mouth at this stage in the game.”
He added, “If the markets break, I’d be pricing my needs for the next several years.”
In relation to corn, the expectations and ability for higher prices depend on where corn goes.
“If we get four dollar corn or expectations of those numbers, it is going to be tough to move beef prices up,” commented Young.
“When you put all this together, the long-term decline we have seen in beef, coupled with the declines in poultry and pork, we are talking about an almost 30 pounds drop in consumption of protein per capita over the last five to six years,” he added. “That is a pretty substantial drop, and I don’t know that we will get it back.”
With the adjustment of the population toward higher cost structures as a result of economics and sustained drought, Young added that producers need to remind themselves of the ability of the consumer to afford beef products. As beef increases, fewer Americans will be able to afford the product.
“Going forward,” Young commented of the current state, “we will have to deal with volatile commodity prices. We could see three dollar corn, or we could see nine dollar corn. We will have to live with that.”