Thursday, January 04, 2007

The price of Corn

Estimates are that half the corn crop will be used for Ethanol as early as next year.
Companies that use corn for
animal feed
food aditives and ingredients
corn flour

Are screwed.

CPO is one company that does that and only that. Their stock is actually close to an all time high.
The theory is that shortages of the high fructose corn syrup (hfcs) sweetner (because of corn shortages because of ethanol production) will raise prices enough to offset the higher corn costs.
That doesn't make much sense to me. If hfcs was that profitable, the corn wouldn't go to ethanol.
Plus I think most hfcs users will go to alternative sweetners. In fact, most of the hfcs business is fake.
Sugar tariffs make sugar artificially high (the US uses more corn syrup than anyone else because of that).
Good article last month in the New Yorker economics column about that.

Citigroup analysis says the sensitivity of CPO earnings to HFCS prices is much greater than sensitivity to the cost of corn so the upside is greater than the downside. But I think they're just not taking into account a real corn shortage.
The real analysis that has to be made is profitability of ethanol production (subsidized as it is and with state mandates to produce a certain amount of ethanol fuel to be mixed with gasonline) versus the profitability of HFCS production (the most profitable current use of corn besides selling ears at the supermarket).
HFCS is buried by ethanol right now. It just seems inevitable to me that there simply won't be enough corn available to make ethanol and HFCS -- so HFCS will disappear except in quantities where its not replaceable.
Other sweetners (including sugar which is actually cheaper if imported and not tariffed) will displace corn syrup.

I've gotta


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