We are breathing some pretty rare air.  The nearby March corn and May futures months continue to smash through recent highs.  Last Thursday the March corn finished at $4.34 bu. and the May finished at $4.47 bu.  Are we losing our mind?  Is the market always right, like I’ve said so many times?  Was it just last summer that corn traded as low as $2.49 bu?  Are we going for “double or nothing?”

Soybeans are up too but nothing like corn.  The March 2007 soybean futures finished at $7.83 as Thursday, the May at $8.00.  That’s a lot more than we become accustomed to, but a far cry from the thin air corn finds itself in.  Should we grow beans this year or keep that corn planter rolling.  The guys flipping the coins at Chicago grow more nervous as that warm spring sun gets closer.

By now all of us know the debate.  Last year most of us were scratching our heads wondering why prices were so poor.  One poor wretched analyst stood in front of a group of farmers and lamented, “this thing is just like a wound up coil spring, one of these days it’s going to let go!”  Sitting in the hot sun of 2006 with sweat pouring down my brow, I could only hope.  Let me tell you.  The key has been pulled and the spring has sprung.  Where it will land in the February and March of 2007 nobody knows.

Yes, it is the ethanol gold rush still going on.  The numbers are frightening for the corn ethanol enthusiast.  Simply put when President George W. Bush stood up before congress and said he wanted the US to produce 132 billion litres (35 billion gallons) of biofuels a year by 2017, the market listened.  He wants this, just like a lot of other Americans to free that country from the tyranny of foreign oil.  By 2017 they want to reduce US gas consumption with the help of bio-fuel by 20%.  It’s a tall order, to tall for many to get their head around.

Look at it this way.  At the present time there is no way the Americans can satisfy that demand with corn.  Believe it or not, there is just not enough corn to satisfy that demand, in fact in the future some analysts say corn won’t even satisfy half of it.  However, is that talk manna from heaven to any agricultural market?  Is it wine to the wino?  Get the picture.  Look at any corn price chart over the last five years.  Corn has taken off and its price chart looks like a rocket path.

It’s almost like we’ve got a new six-shooter and we’re running drunk through a glass house.  Eventually those bullets are going to hit glass.  Corn is being diverted from food markets.  The livestock sector is re-grouping, adjusting like any corn-based industry would in times of high costs.  Increasingly there is political fall out too.  Last week President Bush chimed back in.  He said that cellulose ethanol held the key to meeting some of the US requirements to weaning itself off foreign oil.  He also said it would take the pressure off the livestock industry.

Quoting from DTN news, this is what President Bush had to say about corn and cellulose ethanol.

“The problem is, we’ve got a lot of hog growers…who are beginning to feel the pinch as a result of high corn prices, and a lot of cattle people in the U.S. (are) worried about high corn prices affecting their making a livelihood,” he said.
“The question is, how do you achieve your goal of less dependence on oil, without breaking your farmers?” he asked.
“I know it sounds like a pipe dream to some…(but) we’re on the verge of some breakthroughs that will enable a pile of woodchips to become the raw materials for fuels that will be able to run your car” he added.  Unquote.

Translation—maybe the corn based ethanol revolution has a reluctant soldier.  President Bush’s 35 billion gallon goal by 2017 is said to have 20 billon gallons from cellulosic sources and another 15 billion gallons from corn ethanol.  At the present time there are technological barriers to getting the cellulosic sources going, but that will pass.  Some analysts think those barriers aren’t that great now.  They think it has more to do with American farm state politics keeping the corn ethanol gravy train going.

So what will it be, cellulose with its switch grass and wood chips or corn-based ethanol?  I’ll let you decide.  However consider this.  The road to ethanol heaven for corn was lined with hard times and many u-turns.  Now, corn producers are benefiting from some hard fought work.  It’s only reasonable to assume that the cellulose road will be a winding one too.  Those technological leaps might prove more daunting than once thought.

There is no North American switch grass/wood chip infrastructure set up like there is for corn right now.  Sure, we’ve got some great forests.  However, before the US reaches 35 billion litres of bio-fuel and a 20% reduction in gas consumption by 2017, the turnip wagon will certainly spill many more times.  For corn producers currently breathing some rare air, the times ahead may be even more rewarding.