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Energy still a hot topic at Kansas Commodity ClassicBy Doug Rich
Energy was the hot topic at the Kansas Commodity Classic grain outlook session last year. And, energy was the hot topic at the outlook session again this year as Bill Hudson, ProExporter Network, and Darrell Holaday, Country Futures/Advanced Market Concepts, discussed grain markets and grain movement. "High corn prices are a result of the onset of world energy demand and are unlikely to go away," Hudson said. Hudson is not sold on cellulosic ethanol. He said the energy crop of the future is still corn. "I think corn is the first, second, and third generation energy crop," Hudson said. "I think this stuff about cellulose is a crock." "I think you want to be a little careful about this cellulosic stuff before you go plant a perennial crop that you don't have to replace except every 10 years," Hudson said. "What if the price signal changed? What if wheat was $10 next year and you had just put in this 10-year crop. What if oil prices come down to $50? You wanted freedom to farm, so you want a crop that is flexible so you can change from wheat to corn." "It is awesome how much ethanol we have available," Hudson said. He stated that over 50 percent of the August fuel supply was E10. Now people are beginning to think ethanol companies are just as bad as the oil companies. "Such a remarkable success but such tremendous negative press, much of it started by the livestock associations," Hudson said. "Energy, energy, energy was all we talked about last year and we are still talking about it this year," Darrell Holaday said. Holaday said ethanol economics changed and capital flowed through the ethanol business. "There was a period of time when ethanol production was better than printing money," Holaday said. "But that did not last long. Capital flowed and the cost of building ethanol plants went up, the value of corn went up, and the value of ethanol went down. Anything that grows this fast will have trouble establishing its market." Holaday said ethanol prices are struggling right now and ethanol marketers are very worried about the first six months of next year. "We don't know where crude oil is going," Holaday said. Besides energy, other forces are at work in the grain market such as China and a weak dollar. Hudson said China probably does not want to depend on the U.S. for its food, but it does. China is getting 60 percent of its vegetable oil from offshore. Half of this is palm oil from Indonesia and Malaysia and half is soybean oil from primarily the U.S. "This is oil for every wok in China," Hudson said. China is the biggest importer of soybean at 35 million tons a year. "They import soybeans, steel, and copper," Hudson said. "They are buying the leg off that stuff and it is all going up in price. As well as ocean freight, which is over $100 per ton." Hudson said the effect on soybean prices has been somewhat offset by the expanding production of soybean in Brazil. Just as China started its miraculous growth in GDP, Brazil made the rain forest available for soybean production. Holaday said that a weaker dollar has meant more exports even with higher freight rates. "The problem with a weaker dollar is that it is evidence that the global economy is carrying the water right now," Holaday said. "When we have inflation under control we don't have the dollar setting record lows, no matter what the politicians say. A weaker dollar by definition tells me we have an inflated dollar." Holaday told those attending the Kansas Commodity Classic to remember that in the world of economics, the greater communicator is price. "The price of something is what communicates change," Holaday said. "What is the next communication?" Doug Rich can be reached by phone at 785-749-5304 or by e-mail at richhpj@aol.com. 12/3/07 Date: 11/29/07
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