There are three key industries that rely on corn: biofuel/ethanol, pork and fructose corn syrup. However, erratic corn prices are forcing biofuel and ethanol producers to diversify, and most are moving to lower-cost non-food and food feedstocks, such as waste vegetable oil, tallow, algae, waste sugar, corn cobs, wood waste and swtichgrass.
This means that some production plants have underwent modifications in order to use these other feedstocks, and while that can be pricey, it has certainly paid off. The biofuel manufacturer FutureFuel has seen considerable gains since introducing alternative feedstocks: in 2011, the company’s biofuel revenue was $141.6 million; in 2012, the company increased this revenue by 35% to $191.4 million.
Last year’s drought yielded a low corn harvest and was detrimental to ethanol manufacturers, who had to downsize production for the first time in 16 years. This year’s harvest is looking to be better, but ethanol and biofuel companies might opt for cheaper feedstocks instead.
This shift is bound to have a significant impact on the corn industry, and we are likely to see an supply of corn that the pork and fructose corn syrup industries can’t cover. We will probably also see noticeably decreased prices, which will, in turn, put more pressure on corn farmers to increase prices to make up for last year and future losses.
This a a true example of classic economic theory at play, where “supply and demand”, along with substitution in competing markets, affects commodity prices in a somewhat unpredictable manner.
Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan
June 18, 2013
Copyright 2013 All rights Reserved by Fluid Management Systems, Inc.