By Brian Doidge, Market Analyst, Ridgetown College, University of Guelph
U.S.
& World
In early March, Mexico announced it would suspend its 20% tax on beverages containing
high fructose corn syrup (HFCS) until September 30. The tax was meant to protect
Mexico’s domestic sugar industry and had effectively stopped imports of HFCS
from the U.S. This suspension is seen as an attempt to reach a resolution to the
long-simmering sugar and sweetener dispute between the two countries. Canada is
affected because Casco is a major player in corn sweeteners, and sweetener markets
in North America have been very soft since the imposition of the Mexican tax January
1.
On Friday, March 8, the U.S. Senate passed an Energy Bill that might have more
impact on corn markets in the long term than the new Farm Bill (whenever it emerges
from Congress). Under the Renewable Fuel Standard contained in the Energy Bill,
ethanol usage will triple in the U.S. by 2012 to 5 billion gallons annually from
the current 1.7 billion. That implies about 2 billion bushels of annual corn usage
by 2012, or about 20% of the total crop, versus the 900 million currently.
The true long-term significance of the Energy Bill is that for there to be any
hope of sustained improvement in corn prices in the future, the long-standing
U.S. dependence on exports must be replaced by expansion in U.S. domestic industrial
corn usage. Domestic usage must absorb corn currently moving into over-supplied
and lowest-price export markets. The Energy Bill makes that happen.
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CORN,
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WKLY AVG TRACK BASIS
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Also in the bill is
a ban on use of Methyl Tertiary Butyl Ether (MTBE) by 2006, which makes ethanol
even more attractive as an oxygenate and octane enhancer. MTBE (made from petroleum-based
methanol) is a carcinogen and has been found in groundwater in California. Twelve
states have already banned MTBE, many phasing it out by 2003. Now the Energy Bill
eliminates MTBE nationally.
But the bill also drops the current oxygenate requirement mandated by existing
U.S. Environmental Protection Agency air quality legislation, especially significant
in designated air pollution abatement cities and regions. Refiners will now be
freed from 1995 gasoline reformulation regulations and minimum oxygen levels.
They will be freed from the mandated use of oxygenates such as MTBE as well as
Ethyl Tertiary Butyl Ether (ETBE), its ethanol-derivative equivalent.
The net result is that the corn-based U.S. ethanol industry is exploding. At least
17 new plants are under construction, with 30 expansions of existing facilities
underway, and announcements of new plants seemingly every day. New ethanol production
records have been established every month since last spring. Michigan is well
on the way to its first ethanol facility in Cara which will be about the same
size as the Commercial Alcohols ethanol plant in Chatham, Ontario. Ohio will shortly
pass legislation that will make it easier to finance ethanol plant construction
and provides for a number of tax advantages. Ohio’s first ethanol plant is
already being planned for construction in Defiance, Ohio.
Friday, March 8, the USDA released its March Supply & Demand report which
was not especially friendly to corn. Exports were decreased, as expected, by 50
million bushels, but industrial usage was not increased, which was a surprise.
Stocks were increased as a result and forecasted average cash price shaved a nickel
to US$1.95/bu.
Ontario
Environment Canada issued a report mid-week which showed the warmest winter,
4.8C above normal, for southern Ontario and Quebec since national records began
in 1948. Toronto had the warmest winter since 1840 when records began, while
Montreal was the warmest in 60 years. Also worrisome is the fact that snowfall
has been much less than normal. “Most of Canada was drier than normal,
especially the Prairies, southern Ontario, southern Quebec, and Atlantic Canada.”
At that rate, soil moisture levels cannot recharge, a concern especially for
the Prairies, where 60%-70% of the arable land remains very dry.
In Ontario, not a lot happening. Basis offers have held flat as have cash offers
for both old and new crop.
