USDA Sees Slower Ethanol Growth; Biodiesel Feedstock Holding Tight The latest global supply report from the U.S. Department of Agriculture (USDA) predicts the big growth in domestic ethanol production will ease as the nation's feedstock corn prices remain high and stockpiles of the grain are diminished as demand outstrips production. "The slowing pace of [ethanol] plant construction and expansion, and lower capacity utilization are expected to modestly dampen growth in ethanol corn use," said USDA in its World Agricultural Supply and Demand estimate released Friday. The report noted a 100-million-bushel cut in the amount of corn used to make ethanol in the current 2007-08 crop year, but it just represents a reduction in the expected increase, which for 2008-09 is anticipated to take up 4 billion bushels –still an increase of 33 percent from the current year. Corn prices are expected to remain historically high amid stocks expected to be pressed into long-time lows. The current year corn price forecast is $4.10- $4.40/bu., but USDA expects the 2008-09 year could be even higher, averaging $5.00- $6.00/bu. The next corn crop at 12.125 billion bushels would be down 7 percent from 2007-08, noted USDA. At the same time, corn supply falls 870 million bushels and, at a projected 763 million bushels, ending stocks would be the lowest in more than a dozen seasons. Ending stocks would be down 45 percent season-to-season, with USDA numbers suggesting that corn demand will exceed 2008/09 production by 635 million bushels. The worldwide situation will not be in a position to fill gaps left by the U.S., noted USDA. "At the projected 99 million tons, 2008-09 global ending stocks are expected to hit a 25-year low." Analysts, many of whom anticipated even lower corn supply prognostications from the USDA report, remained a bit skeptical. Some suggested USDA was reluctant to be more aggressive with its forecasts, fearing it could fuel what has already been a red-hot corn market. "These are pretty dangerous numbers, nevertheless," remarked one grain market analyst. "There's no margin for a less- than-smooth crop season when it comes to corn." Meantime, greater production of soybeans and soybean oil is not expected to do much to dampen the cost of feedstock for U.S. biodiesel producers, according to USDA. Soybean oil prices will run 50-54cts/lb., compared to 52cts/lb. in the current season. Season-average soybean prices projected from $10.50-$12/bu next season would still be up from the $10/bu in the current 2007-08 season. "Biodiesel production is expected to use 15 percent of total soybean oil production for 2008-09 compared with 14 percent in 2007/08," said USDA. Soybean oil demand will diminish in the next season, mostly because of lower food use that offsets some increase in use for biodiesel production, added the agency. Soybean production predicted at 3.1 billion bushels in 2008-09 will be up 520,000 bushels, or about 20.2 percent, from the current season, but that will only add about 3 percent to soybean supply, according to USDA. "Most of the production is offset by sharply lower beginning stocks." Globally, overall oilseed production was seen recovering from the current season which visited the first year-on-year decline in output since the 1995-96 season. Next season, world oilseed production expected at 423 million tons would be 32.2 million tons higher that 2007-08 output. Still, ending stocks for the current season will be half-a-million tons from last month's prediction, said USDA, mostly "due to the lower projected soybean stocks in the United States." "Nothing in the report is too surprising or unexpected," explained Soleil Group analyst Ian Horowitz in a research update. But it does mean that even if trend-line yields are achieved, supply will be historically tight, especially for corn. "Both yields and additional corn acres are at risk for the 2008 crop as we move closer to the mid-May timeframe with plantings well behind schedule." --Spencer Kelly, skelly@opisnet.com Copyright, Oil Price Information Service