Milling & Baking News - November 30, 2004 - 15

C O R N

W E T

M I L L I N G

Time for Thanksgiving
BY PETER MEYER
Thanksgiving, the annual celebration of
the American harvest, should be particularly festive this year. According to the
U.S. Department of Agriculture, farmers
will celebrate in fiscal year 2003-04 their
largest harvest - a rich bounty both for
the table and the fuel tank.
As the U.S.D.A. reported in its November World Agricultural Supply and
Demand Estimate, the two major U.S.
crops - soybeans and corn - produced
staggering results.
U.S. total oilseed
production is projected
at 96.8 million tons.
Soybean
production
is forecast at a record
3.150 billion bus, up 43
million bus from last
month based on a record
yield and higher harvested area. At 42.6 bus
per acre, the 2004 yield
forecast exceeds the previous record of 41.4 bus
per acre set in 1994.
Forecast corn production of a remarkable
160.2 bus an acre resulted in record production of 11.741 billion bus.
Even rice and cotton
showed substantial production improvement.
"U.S. rice production
is forecast at a record
227.65 million cwts, 1%
above last month and
14% above 2003-04," the U.S.D.A. said.
Average yield is forecast at a record.
In cotton, a "sharply higher production
estimate is raising 2004-05 U.S. ending
stocks this month," the U.S.D.A. noted.
The impact of early planting, timely
rains and a mild summer/fall season
resulted in a hot house environment that
produced record bounty in the heartland.
In northern Illinois it was the first time
since temperature records have been
kept that the average temperature in
September was warmer than the average
temperature in August. This mild warm
atmosphere obviously affected yield in a
positive way for corn and beans.
As expected, corn prices have fallen
to government support levels during
harvest. The carryover should be large
enough to provide for feed, industrial
and export demand for the coming year.

Ethanol demand on rise
The fastest growing element of corn
demand is ethanol. In this column of
Oct. 26, it was misstated that ethanol
16 / Milling & Baking News, November 30, 2004

produced in the United States in 2005
would be between 1.3 billion to 1.5 billion gallons. Obviously incorrect and, by
the way if true, a major disappointment
to many ethanol producers. The 1.3 billion to 1.5 billion refers to the number
of bushels of corn that will be used to
produce ethanol in 2005. That amount
of corn would be almost 13% of this just
harvested crop. The amount of ethanol
produced will be about 3.8 billion gallons in 2005. For calendar 2004 the in-

dustry will produce 3.3 billion gallons.
The Renewable Fuels Association reports "Currently 81 ethanol plants have
the capacity to produce more than 3.4
billion gallons annually. Fourteen plants
with 630 million gallons of annual capacity are under construction." It is possible
that depending on construction progress
even more than the 3.8 billion gallons
might be sold next year.
On the legislative front, the House
and Senate passed and the President
signed the JOBS bill, which among other
features extended the ethanol tax incentive to 2010, eliminated the deduction of
the ethanol incentives from the Highway
Trust Fund and modified the Small Ethanol Producer Tax Credit to allow agricultural cooperatives to fully participate in
all the benefits of the program.
A new tax credit also was added for
biodiesel. Biodiesel is a variation on diesel
fuel in which converted vegetable oil is
used as a fuel additive. The American Soybean Association stated, "The biodiesel tax
incentive, which is structured as a federal

excise tax credit, amounts to a penny per
percentage point of biodiesel blended with
petroleum diesel for first-use oils, like soybean oil, and a half-penny per percentage
for biodiesel made from other sources, like
recycled cooking oil."

Legislation in the works
The first oil to be used in this process was rapeseed or canola. Because
the technology has advanced, soybean
oil now may be readily processed into
biodiesel. Several states, including Iowa
and Illinois, are working on legislation
to encourage biodiesel
production and usage.
This combined with the
50c per gallon of federal support could make
biodiesel
economically
viable in the near future.
As little as a 2% inclusion
of biodiesel in diesel fuel
may replace the lubricity
currently supplied by sulphur, which soon must be
removed from diesel fuel
under an Environmental
Protection Agency edict.
It was first assumed
that the energy bill would
precede the JOBS bill but
the energy bill has been
tortured for more than
two years in Congress
by riptides of conflicting
and changing interests.
It is likely now that a bill
will come forward soon.
It is important for ethanol
interest that changes are
made, particularly in the mandated quantities for ethanol. Even three years ago, 3
billion gallons were a modest beginning
volume target. Now a 3 billion mandate
and elimination of clean air requirements
for ethanol use would wreak havoc on an
industry rapidly moving toward 4 billion
gallons of capacity and shipments.
The remarkable harvest of 2004
provides a solid basis on which to continue the growth in ethanol and begin a
biodiesel program. The remarkably high
petroleum prices of 2004 provide a solid
reason to do so. MBN

Peter A. Meyer is
president of PMI
Consultants, a
Chicago-based consultant to the food
and agribusiness
industry.
bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - November 30, 2004

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