Ethanol (Part III)

By: Joe Brown
By: Joe Brown

“The interest in producing it goes well beyond just the U.S. In fact, over the last couple of years China has been preparing to produce a substantial amount of ethanol from grain.”

Texas has always been a corn deficit state, but marketing consultant John Miller says in the past producers’ ability to increase yields has stifled any substantial price increases that a shortage of grain would create.

“This creates a situation where we have enhanced prices during the winter many times, but so many years the problem is pricing in the summer, particularly during the harvest period. It’s always very exciting for producers to think about a ready demand for corn, particularly around harvest time.”

Naturally farmers would be interested in the demand a local ethanol plant would create, but a local plant doesn’t have to be built to effect local grain prices.

“It’s easy to understand that they’re actually able to benefit from ethanol produced in other areas, such as the Midwest. That makes our corn here even more valuable to feeders of cattle, poultry, and other livestock.”

Monthly ethanol production is exceeding analyst’s forecasts by about 10% from the previous year.

“I think that there’s no question that this trend is going to continue, and that people even beyond the agricultural sector are beginning to invest, such as oil companies being partial investors in ethanol plants.”

And with increased investment comes increased market volatility.

“You want to be excited about this opportunity looking forward to these new demands, but you also want to understand that covering costs is a top priority, and you don’t want to be holding out for something that may or may not occur.”

So the farmers’ gamble with everything from the weather, to the price of inputs, to commodity prices continues. I’m Joe brown, looking at Brazos Valley agriculture, From the Ground Up.

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