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Regional & National

Ethanol demand boosts cornplanting 15 percent in 2007

March 30th, 2007 9:30 pm by Associated Press




DES MOINES, Iowa - An ethanol-fueled boom in prices will prompt American farmers to plant the most corn since the year the Allies invaded Normandy, but surging demand could mean consumers still may pay more for everything from chicken to cough syrup.


Farmers are expected to plant 90.5 million acres of corn, according to the U.S. Department of Agriculture's annual prospective plantings report released Friday. That would be a 15 percent increase over 2006 and the most corn planted since 1944.


Mother Nature will play a large part in the actual acreage planted. Muddy fields are already slowing plantings in some states.


"We're awfully wet out here," said John Scott, a grain farmer in west central Iowa. "Normally by this time of year we're doing quite a bit of field work. There just isn't a wheel turning out here. Illinois is in the same boat."


Corn should be planted by mid-May for good yields and soybeans can be planted as late as June, which could be a fallback plan for farmers if corn doesn't get planted in time.


The move to plant corn is in large part due to a rush to produce corn-based ethanol, which is blended with gasoline. There are now 114 ethanol refineries nationwide and another 80 under construction.


The corn rush was sparked by President Bush's initiative to support flexible-fuel vehicles, which are capable of using gasoline and ethanol blends, and his administration's plan to cut gas consumption by 20 percent in 10 years.


Corn prices were already rising when Bush announced the initiative in Washington on Jan. 23 and there has been growing concern that the corn rush could hurt the poor in less-developed nations such as Mexico, where the crop is a staple used in tortillas.


On Thursday, Cuban leader Fidel Castro wrote in an editorial for the Communist Party daily newspaper that President Bush's ethanol plan could deplete corn and other food stocks in developing nations, putting the lives of 3 billion people at risk worldwide.


"You're in the middle of an emergence of a food versus fuel debate," said Lincoln Ellis, director of asset management for the Linn Group, a Chicago-based privately held financial trading business focusing on commodities and futures. "This is the pregame show. We haven't even hit the first quarter."


Corn is a key ingredient in many foods, from corn syrup found in candies and cough syrup to feed used in meat production.


Chicken producers welcomed the planting report, hoping that an increased corn supply would reduce feed costs that have led to a 40 percent rise in chicken prices. But they noted that the bigger corn harvest would come at the expense of soybean acres, expected to drop by 11 percent.


"This is definitely a mixed report," Bill Roenigk, senior vice president and chief economist at the National Chicken Council, said in a statement.


Livestock and dairy producers also were optimistic that increased corn production could lead to a decline in feed prices. That presumption showed up in the stock prices for chicken producers on Friday. The shares of Pilgrim's Pride Corp., Tyson Foods Inc. and Sanderson Farms Inc. all rose after the news.


Corn for May delivery was trading at $3.74 a bushel Friday on the Chicago Board of Trade, down 5.1 percent, or 20 cents from Thursday, the daily limit for loss set by the board.


Corn prices had fallen about 17 percent from their Feb. 26 10-year high of $4.50. Agriculture industry analyst David Driscoll, of Citigroup Research, said in a report to investors Friday that he expects the increased corn acres to cause the price of corn to fall to about $3 a bushel by December. Corn had been stuck at around $2 a bushel for years before the ethanol boom lifted prices. Bob Ray, a senior vice president at the Chicago Board of Trade, said predictions that corn prices will continue to decline because of plentiful supply from a huge harvest must be balanced with increasing demand from the export market. Both China and India have sent signals recently that they'll import significant amounts of U.S. corn. The Chinese can't raise enough corn to feed their rapidly growing livestock market and India has recently lowered tariffs, indicating plans to import grains from the United States. A wild card also could be the European Union, which also has to meet required renewable fuel mandates and doesn't have enough land available to set aside for grains to make into ethanol. John M.A. Roy, an ethanol analyst for WR Hambrecht and Co., predicts that ethanol demand will grow by at least 32 percent in 2007. "Overall this was a good report for ethanol producers and could help their stocks short-term, but the issue of high priced corn is not over," Roy said in a research note. The USDA based the planting report on surveys of more than 86,000 farmers across the country. Increased corn planting also could mean a large drop in cotton production, expected to be down 20 percent from last year. In Arkansas, for example, farmers intend to plant 66 percent more acres in corn. Cotton acres are expected to drop from 1.2 million acres last year to 740,000 acres this year. A similar drop in cotton acreage is expected in Mississippi. Stuart Sanderson, who farms 4,000 acres of wheat, soybeans, corn and cotton near the Tennessee River in northern Alabama, converted all of his cotton acres to corn this year, a move he expects to pay off in an extra $150 an acre. He said all neighboring farmers he knows have converted at least 30 percent of their fields from cotton to corn. "When corn goes over that $3 mark it really catches attention," he said. "The thing about cotton is you can't turn it into a fuel. With corn, you can eat it, you can feed it, you can turn it into fuel. With the ethanol engine, it's a really good time to be growing corn." He doesn't anticipate a shortage of cotton, however, because domestic stockpiles remain large. In its report, the USDA said Iowa remains on top with the most corn acres to be planted at 13.9 million - a 10.3 percent increase from last year. Besides a drop in soybean and cotton plantings, rice was expected to decline 7 percent to 2.64 million acres. Some grains are expected to rise. Wheat is expected to rise 5 percent with 60.3 million acres. Other increases include: sorghum, up 9 percent; canola, up 12 percent; and barley, up 7 percent. Figures of actual acres planted for the year will be released on June 29. -- On the Net: U.S. Department of Agriculture: http://www.usda.gov/wps/portal/usdahome AP-CS-03-30-07 1803EDT

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