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Long road ahead: Slow ethanol and export demand will hinder crop markets

WEST LAFAYETTE, Ind. — The U.S. Department of Agriculture’s planting predications didn’t sit well for the supply side of the corn price equation for the 2020 crop, when the USDA pegged the corn crop at 97 million acres nationwide.

“Even if farmers switch a million or two acres to soybeans, that still leaves the potential for a lot of corn come fall, assuming trend yield,” said Michael Langemeier, a Purdue University agricultural economist and associate director of Purdue’s Center for Commercial Agriculture.

Langemeier said he believes that some farmers may choose to switch to soybeans, but overall he doesn’t expect a lot of individuals to switch from corn to soybeans.

“There may be some switching to soybeans, but overall I don’t expect lots of switching. To the extent some producers switch from their March planting intentions, they will most likely move away from corn-after-corn and back to a corn-soybean rotation, especially in western Corn Belt states,” he said.

Jim Mintert, who is a Purdue agricultural economist and Purdue’s director for the Center for Commercial Agriculture, said that whatever happens this growing season, there is still potential for plenty of soybeans this fall, too.

“We turn to the demand side for both crops, and particularly for corn, it’s not real rosy there either,” he said.

Mintert said that in the past few years ethanol and livestock feed accounted for nearly 80% of the corn demand nationwide and the demand was usually split almost evenly between the two sectors.

“The ethanol market was deteriorating due to low oil prices and resulting weak gas prices, even before COVID-19 became a crisis in the U.S.,” Langemeier said, adding data from Iowa State University suggests that corn would have needed to drop another 30 cents per bushel below the April 1 basement price before ethanol producers would even be able to break even.

Mintert added that he doesn’t expect the ethanol market to recover quickly.

“We don’t expect the ethanol picture to improve very quickly. We look for a slow recovery from the global recession developing now as a result of COVID-19,” he said.

Mintert said that the total U.S. corn usage for ethanol in 2019 was reported by the USDA at close to 5.43 billion bushels in March, but if ethanol plants are forced to shut down or current shutdowns extend into summers, corn usage for ethanol could fall as low as 5 billon bushels.

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