As ethanol plants increase their capacity or begin initial operation, a bit more surplus corn disappears. The increasing consumption of corn has pushed stocks down to an estimated 800 million bushels at the end of the current marketing year. The projections being made about 2007 acreage and our potential production point to a continued decline in surplus stocks in 2008. There are always pockets of corn of varying size around the Cornbelt, but with the ramped up demand, will there be pockets where all of the corn has disappeared?

Your high school science teacher taught you that water seeks its own level, and without waves, it will have a smooth surface. To a similar extent corn will seek its own level based on prices offered by purchasers, but from time to time the surface of the Great Corn Lake will have some turbulent waves tossed up by the winds of ethanol. The 2007 marketing year could mark the beginning of rough sailing say Iowa State ag economists Bruce Babcock and Chad Hart. Their analysis in the latest edition of the Iowa Ag Review points to diminished corn surpluses in states that are typically awash in corn.

Babcock and Hart use an estimate of 12 billion gallons of ethanol being produced in the 2008-09 crop year, based on current refinery use as well as those that will be coming on line. That amount of ethanol, based on 2.75 gallons per bushel of corn, would require 4.4 billion bushels. Combined with the needs of the livestock industry the ag economists calculated surpluses and shortages of corn around the Midwest. In the 2004 crop year, when 11.8 billion bushels of corn were produced, Babcock and Hart report, “Sixteen states produced more corn than they used. Illinois had the most surplus corn, at 1.4 billion bushels, but Iowa, Minnesota, Indiana, and Nebraska all had over 500 million bushels of surplus corn each.”

Fast forward to 2008 when Babcock and Hart project 89 million acres of corn planted with a trend yield that would produce 12.8 billion bushels. Keeping the refining rate constant along with livestock feed demand, supplies of corn begin to diminish. “Because the plants under construction are concentrated in a few regions of the country, ethanol’s expansion will shift the location of domestic surplus and how much is available. Given our assumptions, nationwide there would be a total of just over 800 million bushels of domestic surplus corn available for export to other countries or to place in stocks.” (That would be at the end of the 2008-2009 marketing year.)

Where will the surpluses and shortages be?
• Wisconsin changes from a net exporter of corn to a net importer.
• Illinois holds firm at 1.4 billion bushels of surplus corn.
• Iowa falls from second to third in surplus corn, as the state will have only 400 million bushels left after accounting for in-state uses.
• Nebraska’s domestic surplus corn falls 400 million bushels from 2004 levels.
• Indiana’s drops 200 million from 2004.
• Corn importing states, such as Kansas and Texas, increase their use of corn to fuel their new ethanol plants as well.

The economists project those significant reductions of surplus will create tight supplies of corn in specific areas, translating into higher localized corn prices. The stability of supply in Illinois and Minnesota, relative to the ethanol demand increasing at the rate of production, suggests those states as being sources of cheaper corn.

Summary:
The growing demand for ethanol will create more corn production, but localized increases in demand will result in pockets of tight supply around the Cornbelt. Depending on locations of ethanol plant construction, tighter supplies will create scenarios of price variation, and corn will be imported from one state to another. The localized prices will reflect how supply and demand is balanced within a given area.