Corn prices could run into the $4.25- to $4.75-per-bushel range this year, says Chris Hurt, Purdue University agriculture economist. He cites a combination of growing ethanol production and an expected reduction of U.S. corn acreage.

A 6 percent drop in corn acreage is not unlikely, Hurt notes. "All major crops are in short supply globally, and some of those will outbid corn for acreage," he says. Wheat and soybeans face the shortest supplies, and those markets will likely rally to pull acres away from corn this spring.

As for ethanol, new plant openings in the first half of 2008, will result in production increases from the current 7.3 billion gallons up to 11.8 billions gallons.

"The amount of corn required to feed that capacity will grow from about 2.5 billion bushels today to 4 billion bushels by July 2008," Hurt notes. In the second half of the year, that capacity will grow to 4.5 billion bushels. Even if the ethanol plants run below capacity, rationing will be needed. "Given the outlook for $2-plus-per-gallon ethanol prices and $160-per-ton distiller's grains into  fall 2008, it implies that we will see cash corn prices in the $4.25- to $4.75-per-bushel range. It will not be until 2009 when corn production may be able to meet the demand," he concludes.

Source: Purdue University