Corn Prices To Soar As Chinese Imports Increase Ninefold Compared To Official Projections

ZeroHedge ^ | 2/6/2011 | Tyler Durden

[FromLori]

Cotton, wheat, rice, and now corn. If revised Chinese import estimates by the US Grain Council are even remotely correct, look for corn prices of $6.80 a bushel at last check to jump by at least 15% in a very short amount of time. As the FT reports, "Corn prices – and with them, the price of meat – are set to explode if the latest import estimates from China are correct. The US Grain Council, the industry body, said late on Thursday that it has received information pointing to Chinese imports as high as 9m tonnes in 2011-12, up from 1.3m in 2010-11." Why is this a concern? Because "the US Department of Agriculture, which compiles benchmark estimates of supply, demand and stocks, forecast Chinese imports at just 1m tonnes in 2011-12." In other words, the whole forecast supply-demand equilibrium is about to be torn to shreds. And all this excludes the impact of neverending liquidity by the one and only, which will only make the speculative approach to surging corn relentless.

For those who think that there is any even remote hope of a respite in the endless climb in prices, we suggest reading the following:

The most China has imported in modern history is 4.3m tonnes in 1994-95 and 3m tonnes in 1978-79. For most of the past 50 years, Beijing has been largely absent from the international market, as domestic production was enough to meet demand.

But Terry Vinduska, the chairman of the council, said after visiting China that “estimates given to us were that China is short of 10m-15m tonnes in stocks and will need to purchase corn this year”. He pointed to about 9m tonnes in imports. “We learned the government normally keeps stocks at 30 per cent but they are currently a little over 5 per cent, which may lead to imports of 3m-9m tonnes.”

It is not the first warning of forthcoming massive imports. Recently, David C. Nelson, at Rabobank, one of the world’s largest lenders to the global agribusiness industry, warned that because China’s animal protein industry is so large, the order of magnitude of China shifting to become a net importer of corn could possibly be measured in tens of millions of tonnes, and in just a few years time.

“We note that China could become a net importer of 25m tonnes of corn as early as 2015,” he said. Senior executives at trading houses took note of Rabobank’s forecast. Is corn set to be another soyabean?

The US Grain Council did not disclose where it got the information and Chinese food import policy is erratic. With corn nearly at a record high, the country could very well opt to further drawdown stocks.

But the forecast of record imports still need to be taken seriously. When China started to import soyabean back in 1995, few thought the country would today be buying nearly 60 per cent of all the global trade in soyabean. While China waving it in needs little explanation for the observent ones, here's what this means from a third party:

Most of the traders I have spoken to believe that China will become a big corn importer, although none believe it will follow the same pattern as in soyabean. Even so, 9m tonnes is a huge number. Enough to push corn prices above the 2007-08 record of nearly $7.65 a bushel. In early trading on Friday, corn was at $6.65 a bushel. And with six sigma floods, record cyclones, massive snowstorms and abrnomal climatic patterns now a near-daily event courtesy of the Jet Stream having decided to take a sabbatical, the only thing the grains and softs market needs is a lit match to set the whole thing ablaze. Luckily we have our very own chaircreature doing his best to make sure that the commodities market makes eating an activity best enjoyed by those who will be bailed out by the administration the next time there is a downtick in the market.

[OneWingedShark]

While Pimental estimated that 131,017 btu's per gallon were consumed, and 21,500 of those were chargeable to co-products) the USDA reports that the consensus from scientific literature is 79,503 btu's by the wet milling method (with 33,503 btu's chargeable to co-products) and 74,447 by the dry milling process (with 28,415 btu's chargeable to co-products).

Given:

1 gallon of ethanol	=	 84,400 Btu

and the listed USDA BTUs consumed per production of gallon of Ethanol we see that:

Wet Milling	Dry Milling
84,400 - 79,503 = 4,897 BTU gained	84,400 - 74,447 = 9,953 BTU gained

Now, how many BTUs are consumed in transporting the fuel? If it is more than 9,953 then even by the more efficient method [dry milling] then there is a LOSS of BTUs from the economy due the production/transport cost-in-BTUs.

It is interesting to note that the base BTU gain of 9,953 [or 4,897] is rather comparable to one-half to one pound of coal.

1 pound of coal	=	8,100 to 13,000 Btu

*

* It would be even better if I had the figures for BTU cost of extraction of 1 pound of coal on hand to perform a similar computation... it might show that coal is actually, BTU-cost wise, a better fuel than Ethanol. :)

[MichaelCorleone]

“But let’s keep using corn as fuel! That makes sense... not.”

This ethanol BS is always my first thought. It just defies logic to do this, regardless of the price of corn.

Does everything in Washington revolve around how effective/strong the lobbying effort is? What’s in the best interest of the country takes a distant second place.

And they wonder why the rev0lut!on is coming...

[allmendream]

I didn't say that the byproduct of ethanol distillation was not a valuable feed ingredient. I pointed out that it was low in carbohydrates.

I am aware of how animals are raised and fed and sold, because I have raised and fed and sold them. You are not aware that selling a farm animal at auction is a common enough occurrence that they advertise on the local radio where I grew up and made yourself out to be an absolute ignoramus on the subject, going so far as to asininely suggest that I learned about farming from the ubiquitous radio spot about the Farmer's Market and Auction.

Yes, a fatty hog is not preferred over a lean hog, but the hog is sold BY THE POUND.

A low carb diet pig may be the leanest pig in town, but he is not going to sell as well as his high carb fat brother who, thanks to a high fat, high protein, high carbohydrate diet is going to weigh twice as much.

And arguments over the efficiency of ethanol, and how “nothing is wasted” (a ludicrous position) are de facto arguments for the mandate of its use and the 8 billion a year in subsidies. Because without mandating its use, it wouldn't be used, and without subsidizing its cost, it wouldn't be sold.

That should be obvious even to you.

[TheOldLady]

I don’t know about wherever it is that you live, but here the price of meat has already skyrocketed. Hubby wanted a leg of lamb for Sunday dinner, but we weren’t willing to pay $50 for a small one. More shocking, we saw a ham for $55 last Thursday. Ham.

I’m allergic to soy, so my low-carb diet just got very much more expensive.

[Mr. Lucky]

You’re not subtracting the btu’s chargeable to the co-product. If you’re going to charge all of the energy cost of the distillation to the ethanol, then the CO2, corn oil and distillers grains are all free. (What could be better than a process which produces edible oils and high protein feeds for free?)

[surfer]

Everyone is beginning to stockpile...we will see in the future that even the uptick in the manufacturing sector is mostly because companies are gathering inventory of their components ahead of inflation...

[OneWingedShark]

>You’re not subtracting the btu’s chargeable to the co-product.

So?

>If you’re going to charge all of the energy cost of the distillation to the ethanol, then the CO2, corn oil and distillers grains are all free.

I realize that; I am not analyzing the “bonuses” given from waste- or by-products, but only the cost of the production of ethanol.

>(What could be better than a process which produces edible oils and high protein feeds for free?)

But they truly aren’t free if the cost-of-production-and-transportation of the Ethanol consumes MORE BTUs than the Ethanol contains in-total.
If that is the case then what you are terming as free “edible oils and high protein feeds” is actually costing something: the loss in BTUs.

[Mr. Lucky]

OK, let's do some thinking about this.

A 30,000 gallon railroad tank car should weigh something less than 268,000 lbs. fully loaded. An American railroad can haul an average gross ton 480 miles on a single gallon of diesel. A gallon of diesel contains 140,000 btu's and a gallon of ethanol obtained by the dry milling process contains a hair over 46,000 more btu's than were required to produce it (giving fair allocation to the oil and feed also produced).

So, what, the tank car could be moved one and a half times around the Earth before the net energy gained from the ethanol was burned up by transportation?

[Mr. Lucky]

Well, look. You're confused as to how hogs are sold and all the screaming and wastebasket kicking in the world isn't going to convince you otherwise.

Let me try to explain one more time and then we can go our separate ways: all hogs don't sell for the same price per pound.

A contract which is basis the CBOT, for instance requires delivery of a lean hog at between 230 to 260 lbs. Any hog over 260 lbs, but not more than 280 lbs, sells at a discount, while any hog over 280 is out of contract and can't be sold at all. Hogs which are out of CBOT contract are the sort of distressed animals which are then delivered to auction to fetch whatever they can. At auction, all hogs are assumed to be short, fat hogs (as opposed to the long, lean hogs under the contract terms) and are priced accordingly. This is why your father in law complains about the low price of hogs at auction while the price of lean hogs is at a record high.

Sometime if you're interested, you can review the USDOT daily hog reports. These reports breakdown the sale price of hogs based upon a number of factors, but most prominently carcass characteristic. Today's report for the eastern corn belt shows hogs with .4 inch of back fat selling at between $80.88 - 89.01 per cwt. Hogs with an extra inch of back fat sold for between $62.38 - 78.01.

[OneWingedShark]

I think you went the wrong way... let’s try the other way.

>A 30,000 gallon railroad tank car should weigh something less than 268,000 lbs. fully loaded. An American railroad can haul an average gross ton 480 miles on a single gallon of diesel.

One gallon of ethanol weigh about 6.584 lbs.
So, 30,0000 * 6.584 = 197,520 lbs
Now add in the weight of the 30,000G tanker: 65,700 lbs
263,220lbs

A ton is 2,000 lbs; so we divide the 263,220 by 2,000 to get 131.61 Tons.
So it takes 131.61 gallons of diesel to move 480 miles... that’s so the cost of hauling that [per mile] is the 480mi/131.61ga.
That’s about 3.65 MPG for that entire load.

Now, since 1 gallon of diesel fuel = 138,690 Btu we multiply that by the 3.65 and get the cost to transport the load in MI/BTU
138,690 * 3.65 = 506,218.5

Now what we need is the average distance between distilleries and where it is blended into E-85 [refineries? mixing-stations?] and multiply them together to get the cost in BTUs per tank of E85 mix. We would then use 506,218.5 * AVERAGE_DISTANCE / 30,000 to get the transport cost per gallon of Ethanol in BTUs. {If we wanted to be even more accurate we would apply the cost to transport .15 of the E85 to the fueling stations as well.}

[FromLori]

“we will see in the future that even the uptick in the manufacturing sector is mostly because companies are gathering inventory of their components ahead of inflation...”

There’s been a couple of articles in the last week that said companies were doing just that.

[Mr. Lucky]

Several things:

I'm not quite sure how would a truck from the terminal to a gas station would know whether it was carrying a gallon of ethanol or a gallon of gasoline? presumably both move from the terminal to the retail outlet in the same way.

In Northeastern Indiana, there are at least 4 ethanol plants within 50 miles of the largest racking terminal; its not like we're moving from the Persian Gulf to the US eastern seaboard here.

I'm not quite sure what the significance of your 506,218.5 number is. If you're looking for btu's per mile, you would divide, not multiply, 138,690 by 3.65.

[surfer]

Funny thing the entire truth is right there in front of everyone in the employment numbers...we all know they are wrong and mis-represented but even their “fake” numbers the picture is truly horrible.

It is completely amazing the level of neglect that journalists are exhibiting with what is going on. It is even more shocking just how few people really care about America and what we are supposed to be about.

[OneWingedShark]

>I’m not quite sure what the significance of your 506,218.5 number is. If you’re looking for btu’s per mile, you would divide, not multiply, 138,690 by 3.65.

138,690 / 3.65 = 37997

You might be right, let’s check:
If 1 Ga = 138,690 BTU, then 138,690 BTU / 1 Ga is our conversion factor.
So then to get BTUs/Distance we need to multiply X Ga/Distance.

Ok, so we need to take the reciprocal of 3.65 and multiply it: 3.65^-1 ~= 0.2739 [M/G -> G/M]
So we multiply THAT by the 138,690 BTU/G, the G cancel out and we get BTU/M: 138,690 * 0.2739 = 37,997
Yep, everything checks.

So, can we call it 38,000 BTU/M?

>In Northeastern Indiana, there are at least 4 ethanol plants within 50 miles of the largest racking terminal; its not like we’re moving from the Persian Gulf to the US eastern seaboard here.

True, but we’re talking about the impact of the transport-cost; even that 50 miles, multiplied by 38,000 BTU/M yields: 1,900,000 BTU transport cost.
Dividing THAT by the 30,000 Gallons gives us a 63 BTU/G cost applied to the costs of production-&-transport.

63/9,953 ~= 0.006; that’s more than half a percent! —— 63/4,897 ~= 0.013; in excess of 1%
{9,953 is our excess produced BTUs for the Dry milled Ethanol production; 4,897 for Wet}

Then there’s the transport from mixing to the fuel terminal to calculate and subtract from BTUs gained.
Then, if we were really researching the comparative efficiencies of production-&-transports on other fuels, like say Diesel; and we could compare which is actually better on this scale.

Somehow I think all the trouble caused by using Ethanol (gaskets, metal-wear, extended infrastructure, bureaucratic government involvement, etc} really don’t justify production of a 4,897..9,953 MAXIMUM gain in BTUs/Gallon. {That is to say, I’m leaning toward the idea that our energies would be better expended elsewhere: like R&D/production of Diesel automotives for people; I mean look at the NPGs that train uses... how would a car using that technology compare to other cars efficiency-wise?}
{ is our excess produced BTUs for the Dry milled Ethanol production; for Wet}

[Pining_4_TX]

“Great ideas like that qualify you to be president of the United States.”

In addition, I am not at all sure where my birth certificate is!

[Pining_4_TX]

Useful products do not require government subsidies.

[Free Vulcan]

They’d plant corn, as they did before it was used for ethanol.

That’s because the original added-value ag was meat, and the govt set it up so the farmer would overproduce grain products, so in the end we’d have cheap, essentially subsidized meat, especially beef.

Meat in many ways is the older sister of ethanol.

[surfer]

http://news.yahoo.com/s/ap/20110208/ap_on_bi_ge/us_job_openings_2

Employers posted fewer job openings in December, the second straight month of declines. That’s a sign hiring is still weak even as the economy is gaining strength.

The Labor Department said Tuesday that employers advertised nearly 3.1 million jobs that month, a drop of almost 140,000 from November. That’s the lowest total since September.

Funny how they say “even as the economy is gaining strength” - incredible amount of BS.

When you look at Obama is planning to spend $1 billion on his campaign...it has become pretty clear that campaigns are just marketing campaigns designed to counter a bad brand image. We live in the theater of the absurd.

[FromLori]

I notice that a lot these days they must think we are too stupid to figure it out. I really view most of the mainstream news as propagandists now.

[Dust in the Wind]

"The distillation process may render the protein more bioavailable, but the animal is still going to need carbohydrates from somewhere"

go to this link and go to page 16, table 8 and find out where the carbs come from... http://www.extension.iastate.edu/Publications/PM1867.pdf