Value-Added Corn in a Bull Market
By William Olson, Specialty Corn Product Manager
Pricing levels for corn at your local market are at some of the highest levels we have seen for a few years. Not only are the spot prices high, but you can also contract two to three years out at exceptionally high prices. There are articles from many sources stating we will not produce enough corn for ethanol, and suggesting we need to find more acres for feed and fuel.
So, how will high commodity prices and biofuels affect production of Value-added corns like whites, food-grade yellow, waxy and others?
Buyers in the Value-added (VIP) markets are not ignorant of the high prices and what biofuels have done to the commodity
market. They want to buy their ingredients as economically as
possible, but know they need to have higher premiums to entice the producer to grow Value-added corn. Manufacturers are able to adjust some items to balance the cost of ingredients, but they still need specialty corn ingredients for certain functionality
characteristics (waxy starch) or consumer preferences (white versus yellow tortillas). As you talk to your local market, you will see that the premiums have increased to reflect the demand
biofuels have put on corn acreages.
Here is an example of a simple calculator that producers can use to determine if the value for specialty products is great enough to plant a portion of their acres in VIP corn.
In the example, with corn priced at $3.60 a bushel and a $0.60
premium for VIP, even with a $0.10 added cost for VIP, and a 10 percent yield loss for VIP, the value per acre for Value-added corn is still $16.75 more per acre. Some premiums are higher and some lower, but Value-added corns can return a positive margin at higher commodity prices. Producers who have been in these
markets will continue to manage their production to diversify
marketing options for maximum returns. If you haven't planted
VIP corn, you should consider it.
To comment or for more information, send an email to: w.olson@hoegemeyer.com.
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