One Third of the Corn Crop Gone and Corn Growers Facing Breakeven Year

     It did not take very long did it? Remember our reference to commodity production being "margin" industries? Margin industries have a strong tendency to quickly revert to long-term returns over cost that reflect a fair return to the factors of production. This is because they relatively (at least) mirror competitive market outcomes.

     Branding is one of the means whereby products can be differentiated and establish consistent prices above (and sometimes well above) the long-term full costs of production.  Not so in commodity industries.  The long term margin to corn production might be marginally higher because of the worldwide price volatility and therefore increased risk but the outlook for sustained margins due to ethanol subsidies is zero.

     First, it is likely that the current turmoil is going to lead to a global pull back at least in the rate of growth for China and emerging nations which as we have already seen, clobbers the speculative run-up in commodity prices. Second, there is so much focus on alternative energy investment (including massive subsidies with more on the way) that you can expect a rather large decline in the rate of increase (at least) in gasoline consumption worldwide. Hybrid and full-electric vehicles plus conversion of some percentage to natural gas over the next few years almost guarantees that outcome. Add to that the impending global recession which will lead to conservation and less discretionary spending and the decision by China to move domestic gasoline and diesel prices to market rates (by withdrawing subsidies) which has already produced over a 5% decline in fuel consumption there since the Olympics. China has not imported gasoline for two months now (though it is unclear how much of that is due to some pretty hefty pre-Olympics stockpiling).

     With $500+/acre cash rents and double and triple variable input costs, corn growers will face huge challenges next year just breaking even. So now, we have one-third less corn for feed ingredients and breakeven prices for corn growers.