Milling & Baking News - March 24, 2009 - 42

Corn Wet Milling

Spring may loom just around the
corner for corn wet millers
BY PETER A. MEYER

The economic doomsayers are having a field day. For them it is the best
of times. Unemployment rises; consumers and businesses are having a
harder time keeping current on debt
obligations; the amount, value and,
in many cases, the location of the derivatives of those debts is only loosely
grasped. Every bit of good economic
news is pooh-poohed by the economic
Pooh-Bahs. At least this economic climate for the corn wet milling industry makes them feel that they are not
alone in their struggles.
Although not all corn wet millers
produce ethanol, many do, and the
ethanol market continues to take its
toll on producers with several - Verasun and Aventine among the largest - in or approaching bankruptcy.
While all the capacity at Verasun and
roughly half of that at Aventine is from
dry milled corn, the ethanol from the
process competes directly with ethanol from wet mills and therefore is
subject to the same squeeze between
ethanol and net corn prices. Wet mill
plants have generally higher byproduct credits, so can be expected to
weather the price squeeze somewhat
more easily. For Aventine, although
revenue increased by 42% to $537.2
million for the fourth quarter of 2008,
losses reached $36.9 million compared
to a profit in the fourth quarter of 2007
of $3.3 million. The Associated Press
reported, "Its commodity spread on
those gallons (277.9 million fourthquarter 2008), however, declined to 63
cents per gallon from $1.17 per gallon
during the previous year's quarter.
Commodity spread is the gross ethanol selling price per gallon less the net
corn cost per gallon." The volatile corn
market combined with the plunging
crude oil and gasoline markets and
the reduced gasoline demand in the
United States to sink another ethanol
company. It is not a good omen for
the profitability of the wet millers that
margins in ethanol and offtake are
both extremely weak.
The starch market is another sore
spot for wet millers. Recessions traditionally hit paper demand and it has
again. Paper mills are on extended
shutdowns. Coated paper sales have
slumped with the advertising slump
as print media has borne the brunt of
reduced advertising revenues and consequently churned out fewer magazine
bakingbusiness.com / world-grain.com

pages. This downturn in demand unfortunately comes at a time when two
starch plants have recently been recommissioned after extensive flood damage last spring, and one brand new
plant sits in the wings in Iowa.
For HFCS, the graph on this page
tells the story of declining demand
for HFCS from 8.8 million tons in the
2003-2005 time period to 8.2 million
tons dry weight in fiscal 2008. It appears that the 2009 fiscal year to date
has brought further declines in volume as the recession took hold. The
declines in HFCS sales volumes have
been in no small part due both to the
declines in nutritively sweetened carbonated beverage sales over the same

criticism" of the product. In calendar
year 2009 the corn sweetener P.P.I. increase will likely be less than refined
beet sugar, arresting a trend that has
been going on for two to three years.
On the supply side, a corn wet milling plant in Decatur, Ala., is being
shuttered permanently reducing the
potential product overhang in coming years.
In ethanol, the bankruptcies and
plant shutdowns, while painful for
creditors, investors and employees,
will also reduce supply bringing a better supply/demand balance to a currently over served market. The spread
between ethanol and net corn will
continue to be a source of concern, but
the ethanol mandate continues to provide a growing market for producers
who can manage commodity risk and
maximize byproduct returns - the

Sweetener deliveries: high-fructose corn syrup and
the sum of sugar for industrial uses and direct
consumption imports,fiscal years 2003-08
1,000 tons, refined (sugar) and dry weight (HFCS)
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0

Sum of industrial deliveries and direct imports

HFCS

5,251

5,692

5,730

6,131

8,800

8,730

8,460

8,153

2006

2007

2008

Average
2003-05

Source: U.S. Department of Agriculture, F.S.A., S.M.D., and E.R.S.

period and also the high corn prices
which forced high HFCS prices versus sugar. The USDA's January 29th
Sugar and Sweetener Outlook states
that "The corn sweetener Producer
Price Index (P.P.I.) from the Bureau of
Labor Statistics has grown from 147.9
in calendar year 2006 to 176.7 in 2007
and 208.9 in 2008. Relative to 2006, the
refined cane sugar P.P.I. has decreased
7.7% (150.3 to 139.5) and the refined
beet sugar P.P.I. has decreased 9.6%
(146.7 to 132.6)."
With all the bad news is it time to
throw in the towel on corn wet milling?
Not necessarily, for several reasons.
As the graph also shows HFCS
still retains 57% of the U.S. sweetener
market. The industry has developed
an advertising and public relations
campaign to address the "whisper

corn wet millers fit that description.
The hope for starch is that the economy will recover. Significant grind diversion given the problems with other
product markets does not seem an immediate panacea, but cost control and
patience are the obvious strategies until the paper industry rebounds.
All-in-all spring is just around the
corner. Despite the real problems in
the industry, perhaps for the corn wet
millers the seeds of their recovery have
already been planted. MBN

Peter A. Meyer is president of
PMI Consultants, a Chicagobased consultant to the food
and agribusiness industry.

Milling & Baking News

March 24, 2009 / 43

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

Milling & Baking News - March 24, 2009

Table of Contents for the Digital Edition of Milling & Baking News - March 24, 2009