Corn: Is the Ethanol Party Over?

While some commodities in the precious metals sector will enjoy a banner year in 2009, grains, and specifically corn, won't be doing to well, as least in the first half the year, as corn futures drop below $4 a bushel.

Contrast that to last year when the sky seemed the limit when corn futures reached over $8 a bushel, and money was plentiful.

Even the drought in Argentina hasn't made an impact on corn prices, as similar to wheat, the harvest globally has been so good, that losing a significant amount like that hasn't made a dent in the price holding up at all.

One major reason for the downfall was the reliance on the taxpayer subsidized ethanol industry, which unsurprisingly has been hammered from the artificial industry, which doesn't have a chance of being successful, as most government hair brained ideas aren't.

The drop in oil prices has caused the ethanol industry to collapse, and even with subsidies, many have already filed for bankruptcy. While that will help silver producers with cost inputs, it evidently won't help the costly corn production process.

Corn farmers need to learn if they suck at the government teat, they're eventually going to get sour milk.

Only the gullible couldn't see the foolishness of the government ethanol program that already has been seen to be a failure. Oil would have to be well over $200 a barrel to make it sustainable, and there would be a consumer outcry if that were to happen.

Corn farmers are now looking to get out of a lot of their corn acreage this year, and revert to soybeans, which have much less costly inputs, and a much better chance at success than the heavily subsidized corn ethynal debacle.

Unfortunately for corn producers, they've become addicted to government entitlements, and then mistakenly follow their business advice which they have no expertise in. That's why it's better to rely on yourself and your own research than dipping your hand in the public till.

Because of the mismanaged and faulty ethanol hoax, farmers will now find it difficult to optain loans for planting and inputs, as the banking system is wary, and the harvests and corn markets very volatile.

So even though we love maize, not even the drought in a major corn exporting country like Argentina who had their corn outlet cut by over 25% could bring corn futures back up again.

As far as corn prices later in 2009, one thing that could eventually help, is the fact that there probably will be quite a few less acres planted in corn this year, especially in the U.S.

Much will depend on if that remains true in other parts of the world, In Argentina, this is the worst drought since 1971, so it's hard to picture them going through something like this again. So they should rebound and have a good corn harvest next year, which will have to be included in the corn price outlook going ahead.

One thing for sure, this year will be as unpredictable as it has ever been for corn farmers, and looking ahead it could be much better to plant acreage in a more predictable crop than toss the dice on seeding fields in the volatile corn market.